After the party, I resolve to ...
Looking to make a fresh start with your finances in 1997? Here and on page 10 we provide some pointers;
Sunday 29 December 1996
Don't just get out the most recent statement; let's have those for the remainder of the past year while we're at it.
Look at the bottom lines and at the lines showing the balance the night before pay day. Are you consistently overdrawn, always in credit, or does the pattern vary from month to month?
The worst situation is that you are not only in the red the night before pay day, but the night after as well. In other words, your overdraft is bigger than your monthly pay packet. There need be nothing wrong with that, so long as both you and the bank know how and when it will be cleared.
Suppose you get your annual bonus at the end of January, and that clears the overdraft and gives you a "cushion" for the start of the year. So, for the first few months you are comfortably in credit, then you slip into the red and build up the overdraft until the next bonus comes along and the cycle starts all over again.
Take a look at your spending patterns. Are there items which could be rescheduled - paid in a lump sum from your bonus rather than adding to your overdraft? Note that you give up little interest by running down your credit balance, while being overdrawn can be expensive. If your bonus is big enough, why not use it to pay personal pension contributions annually, rather than monthly? At the other end of the scale, there's no point paying the TV licence in instalments if half of them are coming out of your overdraft.
Look at store-card and credit- card bills. Do you pay them in full every month? If not, do so at bonus time and as often afterwards as you can. Otherwise, you end up borrowing from the bank - on costly overdraft terms - to pay the even higher interest charges on what you owe the credit-card company.
You might also consider switching to one of the new, lower-cost credit cards, many of them from US companies. These newcomers are challenging established giants, like Barclaycard on price, typically slashing the traditionally high APR rates.
Two other questions to ask: should I change banks, and would I do better with a personal loan rather than an overdraft?
Borrowing terms vary widely, so if you are thinking of changing, it may make sense to shop around and change banks now - before you need the money. Some banks and building societies offer small-scale overdrafts, typically up to pounds 100, at little or no charge. So if this sounds useful, take a closer look at Bank of Scotland, Barclays, the Co-operative and the Halifax.
Overdrafts are intended for short-term borrowing - a matter of weeks or months - but the golden rule is to arrange the facility first. With unauthorised overdrafts the rates can be penal - and your standing with the bank could be jeopardised.
If you need money for longer than a couple of months, think about a personal loan. Here you know exactly what your repayments will be. Borrow pounds 3,000 for three years from lenders such as Northern Rock, Royal Bank of Scotland or the Nationwide, and your payments will be fixed at about pounds 114 a month including insurance. At the moment, the best borrowing rates from these lenders range from 12.9 to 14.9 per cent.
Those who invariably end the month comfortably in credit have no room for complacency. Okay, your banking may be free, but do you still waste time queuing at the counter to pay bills which could be settled by standing order or direct debit? Not only will you save time, you will often save money: many of the utilities offer a discount for payment in this way.
With many bank accounts, there is also an alternative to direct debit: automated bill payment. Such a system is ideal for variable bills: it means that you can pay by telephone or at a cash machine, simply by keying in the reference number of the bill and the amount to pay.
The final stage in your personal banking review should be to look at the size of the regular surplus on the account, and decide what you want to do with it. Unless you have opted for a high-interest account, don't leave more in the current account than you might need to cover a sudden emergency.
If you might want to spend some of the surplus in a few months' time, consider regular transfers into a notice account such as the Cheltenham & Gloucester's Direct 30 account, which pays 5.50 per cent gross to savers.
And, if you have enough in your short-term savings account, you might think longer-term: nest-eggs for when the children grow up or for retirement. This is where personal equity plans, pensions and other stock market investments come in.
But whatever you do with your money, do read your statements carefully. Banks make mistakes - and if you don't spot them, don't expect them to be pointed out to you.
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