How to take control of your personal finances

Don't panic if your accounts are in a mess, there's plenty of help available. James Daley reports

The British have long been one of the least competent developed nations when it comes to managing their personal finances. A recent survey by the Financial Services Authority discovered that while 81 per cent of people did not think the state would provide them with an adequate pension in retirement, only 37 per cent had bothered to make any additional pension savings. We are also one of the most indebted nations – with more unsecured debt (credit cards and personal loans) than any other country in Europe.

The Government has set about trying to tackle Britain's lack of financial literacy in the classroom, introducing personal finance on to the curriculum – and working with organisations like the Institute of Financial Services to create Personal Finance GSCEs and A-levels. But for those who are already beyond school age, it's not too late to get a better grip on your finances.

GETTING A GRIP

There's plenty you can do to improve your financial position without leaving the house. Simply taking the time to get a proper handle on exactly how much is coming in and out of your bank account each month, how much you owe and how much you have saved will leave you in a much better position to plan for the future.

If you don't already use internet banking, sign up now. Security is rarely a problem these days, and most financial institutions will allow you access to your statements and balances at the click of a button.

If you've got lots of accounts with different companies, it's worth looking into an aggregator site. Services such as First Direct's Internet Banking Plus and Egg's Money Manager, allow you to get access to all your accounts from the same website.

Alternatively, software packages such as Microsoft Money and Personal Accountz take personal financial planning one step further, offering budgeting tools and a whole array of financial planning functions. Quentin Payne, the founder of Accountz, says: "The main advantage of Personal Accountz is the ability to consolidate all your savings accounts, Isas, pensions etc into one financial view. And by putting in all your monthly outgoings, it's great for forecasting. If, for example, you were going to go overdrawn, it would send you a warning – thereby saving you having to incur unnecessary bank charges."

Personal Accountz is available from online retailers such as Amazon, priced at £39.99. Its main rival, Microsoft Money, is half the price, but has not been updated since 2005, and is not as user-friendly.

Once you're on top of your finances, Sue Whitbread of the Institute of Financial Planning says the next important step to improving your financial knowledge is to work out your objectives. In the short-term, these may include saving for a car, a holiday, or reducing your debts. Over the longer-run, you may start thinking about planning for a family, buying a house or be hoping to retire at the age of 65.

USING THE WEB

Once you've got to grips with your current position and laid down your objectives, there are plenty of websites that can help put you on the road to achieving your goals. Sites such as www.moneymadeclear.fsa.gov.uk and www.channel4.com/money include financial health check services, which can give you advice on what your financial priorities should be.

Martin Lewis' www.moneysavingexpert.com is a great resource for help and advice. As well as offering free tools such as budget planners, it provides pages of advice on how to find the best financial deals.

Another useful site is www.h-l.co.uk which includes an excellent pensions calculator, helping you to see how big a pension you're likely to accumulate based on what you're saving now. The results can be shocking. Even if you think you're putting away a decent amount each month, it may not be enough to enable you to retire when you want.

Using the knowledge of other people on the web is another good way to improve your financial knowledge. Sites such as www.fool.co.uk, www.moneysavingexpert.com and www.moneysupermarket.com have forums where you can chat with other users about your finances.

GO ON A COURSE

As of this September, the Institute of Financial Services is launching a new adult Personal Finance Programme, at centres across the country. The course will include a core personal financial planning module, as well as several optional additional modules covering topics such as taxes and benefits, retirement and debt planning. Visit www.ifslearning.com for details. The Open University offers a year-long You and Your Money course, which is a more detailed qualification along the same lines. For more information, go to www.open.ac.uk/courses/tasters/db123.

Citizens Advice offices around the country also occasionally hold personal finance courses. Contact your local office or visit www.citizensadvice.org.uk.

If you don't want to go as far as taking a course, there are plenty of good books available. Dr John White's Investing in Stocks and Shares will help you take your first steps as an investor, while there are many more generic titles by authors such as Alvin Hall and Martin Lewis which will talk you through the basics.

PUTTING IT INTO PRACTICE

Once you're feeling more confident about your financial skills, put them into practice. If you have the means, set up an account with an online broker, where you can manage your savings and investments.

Brokers such as www.tdwaterhouse.com, www.h-l.co.uk, and www.share.com allow you to combine all your investments in wrap accounts, and to make trades online. Sites such as www.trustnet.com and www.citywire.co.uk are also great resources for checking on the performance of your investments.

If you're looking for insurance, loans or credit cards, make sure you shop around online. Websites such as www.uswitch.com and www.moneysupermarket.com allow you to compare prices from different companies. It's worth looking at a handful of comparison sites, however, as they rarely cover the whole market.

Case study: 'You need to keep on top of things'

Thomas Entwhistle, 58, from Lancashire, started using Personal Accountz to manage his finances a few months ago. The software package allows him to keep track of his bank account, savings, debts and investments all in one place, making it easier to plan ahead and to keep on top of exactly what is going into and out of his accounts each month.

"If you don't keep on top of your finances these days, the danger is that things can go missing from your bank account without you knowing," he says. "One of the advantages of this software is how easy it is to use."

Entwhistle, who runs the UK's most popular website for landlords, www.landlordzone.co.uk, liked the software so much that he transferred his company accounts from another provider on to Accountz' business package. "I found it on Amazon," he says. "If you look at the testimonials, Accountz is streets ahead of Microsoft Money."

Using Accountz has left him better informed and given him greater peace of mind over the security of his money, he says.

Quiz: find out how good you are with money matters

1. If you are 30 today, at what age will you be able to start drawing your state pension?

a) 60 b) 65 c) 67

2. Approximately how much would a non-smoking man need to have in his private pension pot at state retirement age to buy himself an annual inflation-proofed income of £20,000 for the rest of his life?

a) £50,000 b) £150,000 c) £400,000

3. How much is the basic state pension per week today?

a) £87.30 b) £115.70 c) £157.75

4. How much money can someone under the age of 65 earn a year before they have to pay any tax?

a) £0 b) £3,450 c) £5,225

5. How much stamp duty would you have to pay on a house worth £251,000?

a) 0 b) £2,510 c) £7,530

6. What is the current Bank of England base rate?

a) 4 per cent b) 5.75 per cent c) 6.25 per cent

7. If interest rates went up by 2 per cent tomorrow, how much would the monthly repayments on a £200,000 25-year variable rate mortgage approximately rise by?

a) £100 b) 250 c) £500

8. What does APR stand for?

a) Average percentage return b) Annual percentage rate c) Annual performance rate

9. Which of these would typically prove the cheapest way of borrowing money over a five-year period?

a) Personal loan b) Credit card c) Overdraft

10. How much cash can you put in a tax-free Isa each tax year?

a) 0 b) £1,000 c) 3,000

ANSWERS: 1) C; 2) C; 3) A; 4) C; 5) C; 6) B; 7) B; 8) B; 9) A; 10) C

How did you fare?

If you got 0-5 questions right: you are a financial failure and need to get your accounts in order; 6-8: you've got some money muddles – but you're nearly there; 9-10: pecuniary perfection – you have your finances well and truly under control