How to cut down on your spending and save more money in lockdown 3.0
Let’s be honest, there’s plenty to worry about right now, without picking over our bank accounts.
But lockdown and its impact on our lifestyles and jobs is putting pressure on finances like never before.
With most of us stuck at home for the foreseeable future, there is one type of spring cleaning we can get on with a little early.
Going through your expenditure and debt with a fine-tooth comb can save you hundreds of pounds a month.
This could ensure that you have money to tuck away for a rainy day or are able to make a serious dent in your personal debt.
Getting started can be daunting, but by following a few simple steps and setting aside a few hours right now, you could put in place systems that keep your money working efficiently for the rest of the year.
Gather your paperwork
You need the right tools for the job, in this case the details of all your bank accounts, savings accounts, credit cards and other debt.
These will enable you to see where you are spending too much and where you can switch to more cost-effective products.
Thanks to internet banking apps it is easier than ever to see where your money is going. But you could also print off paper statements if you think you will find it easier to track down payments this way.
Check your outgoings
One of the quickest ways to make a dent in your monthly outgoings is to check for regular payments that go out for services you do not need, or do not use.
That is even more important now, since research shows that 2020’s lockdown made us a nation of ‘subscribers’, signing up to monthly payments for everything from streaming services to baking kits.
According to figures from Barclaycard Payments, services such as meal subscription kits surged 62% during lockdown, while we also spent more on digital streaming services such as Netflix and Disney+. The costs of these can add up substantially, amounting to an average of £552 a year.
Adam Bullock, UK director of cashback website TopCashback, says that music and television subscriptions are the most popular followed by product-delivery services, fitness subscriptions and recipe boxes. But while subscriptions can be fun and useful, it’s important to take stock and cancel them when you don’t need them.
‘We would encourage those taking out new contracts or services to be extra vigilant about when trials end, and consider if they are going to need or use it once self-isolation comes to an end,’ he says.
Be sure to keep an eye on subscriptions to see if they’re still worth the money. As well as subscriptions taken out in lockdown, you may also have monthly payments for activities or services (such as gym subscriptions) that cannot be used at present.
You may even have payments that are entirely unnecessary, such as mobile phone insurance for a phone you do not own any more. To spot these, ensure you look at regular monthly payments on your credit card as well as your bank statement, as they can be tricky to find.
Always check your contract before you cancel a subscription. In most cases the subscription payment will be what is known as a continuous payment authority, which you should be able to cancel by contacting the merchant or the bank.
However, if you’ve entered into a contract, you are still liable to pay the money so it is important to check terms and conditions of any contract you’ve entered into.
Switch household bills
Once you’ve slashed monthly payments, the next thing to look at is household bills.
With most of us working from home and children home schooling, energy bills are a particular focus for most this winter, with Adam at TopCashback citing studies that show 80% of us are worried about the cost of the energy we are using.
Switching energy suppliers can be one way to bring down these costs, especially if you are no longer on your supplier’s cheapest rate because the deal you were on has expired.
A spokesman from personal finance site Moneysavingexpert, warns that wholesale energy prices have soared recently, meaning that even the cheapest deals are up £50 a year.
‘As it’s mid-winter, it’s the worst time to be overpaying,’ he says. Using a comparison site, such as Uswitch, ComparetheMarket or GoCompare allows you to input your usage and be given a choice of cheaper deals you can switch to.
Asking your existing supplier to put you onto their cheapest deal is also likely to improve your costs if you haven’t switched recently.
Other household bills to focus on include your broadband bill, particularly if you are currently with Virgin, which has just hiked its prices by up to £54 a year. Because the price hike is above Consumer Prices Index (CPI) inflation, you can switch providers even if you are in contract, provided you do so within 30 days of receiving the notification.
Customers with other providers should check whether they are out of contract before switching.
You can use comparison websites including the specialist broadbandchoices.co.uk to find new deals, but it’s also wise to talk to your existing supplier if you can, especially if you are in a rural area with a lack of choice.
Holly Niblett, head of digital at switching website Comparethemarket.com, says that a quarter of people who contact their existing provider and who haven’t switched managed to haggle a better deal at the end of their contract.
‘The best way to ensure you are on the right deal is by shopping around to compare the options available to you in your area,’ she says.
It is also worth checking your phone and mobile phone contracts, ensuring you aren’t paying for landline minutes you don’t use or a handset you’ve already paid for. If you are out of contract on your mobile phone but happy to keep your handset, a Sim-only contract is likely to be cheaper.
Try billmonitor to match your phone usage with a contract that will suit you, especially since working from home may have reduced your data needs considerably.
Tackle your debt
The coronavirus pandemic has not affected everyone equally, and government statistics, out this week, show that 17.4% of the population had to borrow more by December 2020 because of the effects of the virus.
This debt has taken many forms, from credit cards and loans to mortgage holidays and overdrafts. At the extreme end there is also more expensive consumer credit including payday loans, and households turning to pawnbrokers.
If you have debt, it’s easy to try to ignore it, but meeting it head-on will yield a better long-term result. Even if you can manage the monthly repayments, you may benefit from trying to reduce the interest on your loans or credit cards so you can pay them off faster.
Depending on your credit rating, you might qualify for one of the remaining interest-free credit cards, which would allow you breathing space to repay your debt.
Sarah Coles, financial expert at investment platform Hargreaves Lansdown, says the number of balance transfer cards, which allow you to switch your existing debt to another card with zero or low interest available has been rising.
‘If you’re trying to cut your interest rate while you pay off your credit card debts, it’s worth taking advantage of these deals now if you can,’ she says.
For those who want to switch debt but also spend on a credit card, financial data group Moneyfacts recommends Sainsbury’s Bank’s Dual Offer Credit Card, which has zero per cent interest on both balance transfers and purchases for 20 months, and a balance transfer fee of three per cent.
Eleanor Williams, Moneyfacts finance expert, says that the bank has recently increased the length of the zero per cent period. ‘This update ensures this card is one of the best for dual offers and attractive for those who wish to make purchases and transfer debt on an interest-free basis.’
For those with weaker credit ratings, a low-interest balance transfer card might give you breathing space. Aqua will give you seven months of zero per cent interest on your balance, but you will pay three per cent to transfer it.
For more serious problem debt, a chat with a credit counsellor might be a good start, and may lead to a solution where you pay debts off gradually. Stepchange offers free help, or you could speak to Citizens Advice.
In this low-interest rate environment, it is incredibly hard to ensure that the money you have tucked away is growing at a faster pace than inflation. It is important, though, as otherwise your nest egg will lose value over time.
The latest government figures, out last week, show inflation running at 0.6%, so money that does not earn at least that in interest will lose value.
According to Moneyfacts, the top savings deals are with ICICI bank for instant access, paying 0.6%, while if you can tie money up for a year you can receive 0.8% from QIB UK.
If you want to put the money in an ISA, Al Rayan Bank has a 0.6 per cent instant access version, or 0.65% for a year.
Don’t worry if you haven’t heard of these banks, as they hold banking licences so your money is protected by the UK financial regulator.
As well as switching your savings, changing your provider could improve your financial position as some offer interest on your balance or incentivise you to switch.
Virgin Money currently offers two per cent interest on balances up to £2,000, and if you switch through Moneysupermarket you’ll receive a case of wine, while Nationwide offers two per cent interest on credit balances up to £1,500.
Time to check your mortgage deal
If you own a home with a mortgage and you’ve come to the end of the deal you signed up to, chances are you’ll be on an expensive standard mortgage rate.
Now is a good time to check whether there are better deals available, since you could save hundreds of pounds or pay off your mortgage early.
According to Moneyfacts, the average standard rate is 4.41 per cent, while you could have a two-year fixed rate deal for 2.49 per cent, saving £205 a month on a £200,000 25-year mortgage. Lower rates are available for those with the biggest deposits.
If you want to save for the long-term, you could even consider whether you could overpay your mortgage on a lower rate to save cash. Adding an overpayment of £205 a month on to a £200,000 mortgage at 2.49 per cent would allow you to pay off your mortgage nearly six years early, saving £17,607.
If you’re at the end of your mortgage deal, just speaking to your current provider could help you to get on to a better deal, while you could compare other mortgages using an online broker such as charcol.co.uk or Trussle.
Futureproof your financial fitness
Once you’ve taken all these steps, use technology to ensure you keep on top of spending in future.
Your own banking app can give you a wealth of information, but third-party apps with tight security allow you to see all of your spending and saving on separate cards and accounts at a glance, and can even remind you of when it is time to switch providers again.
Try Emma, Money Dashboard or Yolt, all of which are free apps aimed at helping you to budget and reduce financial waste, or Plum to ensure you are building up an automatic nest egg of savings and investments.
These apps will help you keep an eye on your money to ensure it continues to be used in the most efficient way possible.
‘An app helps me monitor my spending’
Bilyana Georgieva, an account manager for a software company, says that monitoring her household bills and subscriptions saves her hundreds of pounds a year.
She uses Yolt, which monitors her weekly spending on cards and through her bank account, and it regularly reminds her to switch providers for household bills or other expenditure to save cash.
‘I can see everything on a dashboard,’ says Bilyana, 32, from north west London. ‘I’ve recently been prompted to change my electricity provider and my mobile phone, which both saved me lots of money. It helps me to see how spending on things adds up, whether it is coffee, food or travel, and then I can make changes.’
For more money-saving advice as well as chat about cash and alerts on deals and discounts, join Metro.co.uk’s Facebook group, Money Pot.
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