How much richer could you be by this time 2024?
What difference does it really make to upgrade your every day finances? Unless we run the numbers, it’s easy to ignore the changes we could make to how we manage our money. Often these are small actions and the benefits accrue over time, sometimes only after many years.
So, I thought I’d see what I could work out about the difference a few key changes would make in just one year to a typical household in the UK. This was harder than I expected and I had to fudge a few bits here and there. However I think we can get some plausible indicators.
OK, so, an easy one to start off with: cancelling unwanted automated payments. This might be direct debits, standing orders or continuous payment authorities (commonly used for online subscriptions and recurring in-app mobile purchases).
According to NatWest research in 2020 the average wasted on these is £39 a month or £468 a year per household. Coincidentally that’s the same as the cost of signing up to My Year of Action, so if you sign up and we prompt you to take this action, that’s your money back. Everything else is a bonus. Of course, the NatWest number is from before prices started to rise, so it’s probably more now.
What about getting the best buy home insurance instead of just auto-renewing what we’ll assume is a poor deal? At the time of writing, GoCompare reckon they can save at least 51% of their customers £157 a year on a combined policy; Confused.com reckon they can do £163; and Compare the Market reckon they can do £159.
It seems like £160 is a decent ballpark then.
Looking at the same websites for car insurance, a £380 saving seems a realistic figure for this expense.
What about switching a typical balance to a 0% credit card from one charging interest? According to The Money Charity statistics, the average (mean) UK household credit card debt was £2,252 in October 2022. We’ll assume that this is the balance that’s typically carried over each month i.e. that the amount repaid and the additional spending each month are equal and cancel each other out. Apparently, Bank of England data for September 2022 put the average credit card interest rate at 22.2% APR. So shifting that £2,252 to a 0% balance transfer deal saves an estimated £495 if the balance is held at 0% for a whole year. If there’s a 2% fee for transferring, then the saving is £450, which is still nothing to complain about.
How about moving savings from low paying 0.01% AER accounts to a best buy instant access account. Here it gets tricky. I wasted a lot of time trying to get reliable savings figures. The truth is it’s a bit of a minefield because so many households don’t save anything at all that the figures often talk about savings amounts from amongst those who do save. That means the numbers inevitably skew high because savers are on average higher income than non-savers for obvious reasons. If you’re barely making ends meet, you can’t save, certainly not for longer than a few months.
If you look at financial wealth figures that include non-savers, those typically aren’t broken down by product type, so we don’t know how much is held in savings and how much is invested. For example, the median gross household savings in the UK is £12,500 but that includes money invested in shares and other financial assets, so it’s not useful for our purposes. Likewise I found a stat that gave a median amount of £180 per month “saved” per household, but didn’t distinguish between cash savings and investments, so this could be making wildly varying returns from person to person and household to household.
After much trawling around Office of National Statistics surveys, various savings providers and wherever else I could find, the best estimate I could get to was a typical figure of around £5,000 per household in cash savings. If that was being kept in an old instant access savings account of the type often opened automatically with a current account, it could be earnings as little as 0.1% AER or just £5 a year. In which case, moving it to one of the best buy easy access accounts would bring that interest rate up to 3% AER or £150 a year. So that’s a saving of £145 a year.
Shopping around for a better deal on mobile and broadband packages could easily result in savings of £30 a month total, especially if you’re out of contract. That would be £360 a year.
What have we got so far?
£468
£160
£380
£450
£145
£360
£1,963
Cancelling recurring payments
Switching home insurance
Switching car insurance
Transferring a credit card balance (with fee)
Moving savings
Getting deals on mobile and broadband
Grand total
Nearly £2,000 is pretty good going since none of these involves giving up on life’s pleasures. There’s no skipping lattes or declining invitations to brunch on this list. They’re all one and done actions that run in the background of your life just costing less or making you more than they used to do.
The trouble is making the time to actually get these things done.
This is why I created My Year of Action. So you could save your £1,963 and more with just a couple of actions each month that add up to big results. Check it out. I’d love to see you there.
Map your money year
Planning our weekly and monthly spending is how we find the money to repay debts and begin to save and invest. When I’ve talked about this with people in the past, they tell me that they can start to save but “something always comes up”.
Ah yes, the something-always-comes-up effect, or as it’s otherwise known, the occasional spending issue.
If your spending plan only covers the day-to-day expenses that occur every month, then it will seem like “something always comes up” because many months have additional expenses that only occur once a year. If you don’t plan for these, they will always derail you.
So how can you get on top of your occasional spending? Well, occasional expenses can be categorised as fun vs boring types and predictable vs random types.
We’ll start with the predictable expenses because these are where the map of the year comes in. Get a calendar and write in each month any big expenses and also any times when your income changes. For example, if your employer pays a bonus (and you can be very confident you will be getting this bonus) when would that come? Is there seasonal variation in your hours, commission or profits? Mark that in.
This is your money map of the year. It could look something like this*:
Using the map will help you to see if there are particular crunch points in your year when several expenses come at once. You can then work out if any of these could be paid early or delayed to smooth out your costs. It can also help you to be clear during the “good” months how much you need to save for upcoming costs and how much is actually available for a bit of fun.
The random expenses are a bit trickier. You need to think about roughly what you expect them to cost and how often you expect them to happen e.g. if you’re in your mid-late twenties you can expect quite a few of your friends to be getting married and having babies, so it’s a good idea to put a small amount of money aside each month, so you can really enjoy these celebrations when they happen without worrying how much you’re spending.
If you’re a homeowner, you can probably expect one significant repair or replacement every year, so consider how much you’d expect to spend on a new appliance, item or furniture or repair call-out and divide by 12.
Mapping your money year and having a pot of savings (or two) for random costs, brings a strong sense of control and peace of mind. There’s nothing like knowing you’re not going to have to borrow for Christmas and you won’t be caught short by a blocked pipe or a bricked phone.
What is on your map? Can you take a photo and send it to me on Twitter @marthalawton?
*This is not my actual map of the year, it’s loosely based on UK averages.
What can a debt adviser do to help?
It’s Debt Awareness Week in the UK, a week aimed at de-stigmatising debt issues and helping people in problem debt get the help they need from an adviser.
One of the reasons we need this week is that people feel terrible about being in debt, but often don’t seek help before things reach a crisis point. This can be because of shame and fear of judgment, but it can also be because they don’t know how an adviser could actually help.
There’s a perception that budgeting is the only permanent way out of debt, as if once you’re in debt your only options are:
a) misery-misery-misery-bankruptcy
b) live on bread and water (also miserable) until everything’s paid off
I’m leaving out consolidation loans here because those aren’t a solution to debts, just a way to change the type of debt. All too often people who consolidate their debts into a loan keep over-spending and end up in worse trouble than they were before.
Before we go any further understand I’m talking about the advisers giving free advice at debt advice charities. I am not talking about fee-charging advisers. While some fee-charging advisers do give good advice, sadly many give biased advice aimed at pushing you to an unsuitable (but profitable) outcome. To find a reliable, free adviser go to one of the organisations listed here.
The thing is that debt advisers are actually legal experts specialising in the debt law. They know about the legal and regulatory frameworks surrounding lending money, enforcing payment of debts and the protections that people in debt have against being driven into unreasonable hardship. They also know the codes of practice lenders claim they stick to and can spot when they’re not doing that and hold them to accountable. That means that they can find solutions that you or I wouldn’t necessarily know about.
Let’s look at a few of those solutions.
Showing you don’t actually owe the money
Sometimes people are worried about a debt that they are not in fact legally responsible for paying. Some examples might be:
spouse’s debts - unless you signed the contract too, your husband or wife’s debts are often their problem. (There are a few exceptions like utilities, Council Tax and TV Licence for a shared home.)
inherited debts - when a person dies their debts must be paid out of the money and assets they leave behind (their estate), but if they don’t leave enough behind to pay off the debts, then the remainder of the debt dies with with person.
debts where the paperwork is incorrect - did you know that if a lender gets their paperwork wrong they forfeit the right to collect the money they lent you? Now you do!
All of these issues are more complex than the few sentences I’ve given you here, but they illustrate the general point. Sometimes you might not need to pay what you think you need to pay and a debt adviser can get the creditors to back off.
2. Getting interest and charges frozen, so it’s easier to repay
Actually you may be able to do this yourself. Instructions for how to go about it are in National Debtline’s How to Deal with Debt Guide. This is an early step in everyone’s debt advice journey. When you’re being drowned in late fees and interest on your interest, stopping that flow is vital.
Typically fees and charges would be paused for three to six months with a review at the end. The aim is to give you time to find a more permanent solution
3. Maximising your income
Many debt advisers are also familiar with the benefits system and know of grant-making charities that can get you money to help with some of your debts. For example there are specialist charities that can help with gas, electricity and water arrears. Helping you find income you didn’t know you could get is a part of a debt advisers job. They are also good at spotting insurances you may be ale to claim against. Or charges you should never have paid that could be reclaimed.
They may also be able to help you cut your costs in ways that would help you get your books better balanced.
4. Negotiating lower repayments
A debt adviser will be able to help you prioritise which debts need to be paid off first, based on the consequences of not paying. Then they can help you develop a repayment plan that is actually affordable while still leaving you money for a frugal but realistic lifestyle. This may mean that some lenders who have been bugging you for more money may actually be low priority and will have to suck it up and accept that you’re only going to give them a token payment of, say, £1 a month for the foreseeable future.
NB this can affect your credit rating, but you shouldn’t let that stop you. It’s usually better to take the hit in the short term and then rebuild, than carry on and miss payments leading to more stress and a worse mess.
5. Writing off all or part of your debt
Sometimes a debt adviser will be able to convince a lender that you will never be able to repay them in full. The creditor might then agree to write off all or part of the debt. If you have a pot of money (eg an insurance pay-out, some savings, the proceeds of selling something valuable etc) your adviser can negotiate with the creditors to share this out fairly between them and ask them to write off whatever’s left over. Since something is better than nothing many lenders will go for this.
Alternatively, the adviser could plead your case that you’ll never be able to pay and it’s costing the creditors more in staff wages trying to chase you than they’ll ever make back. This may convince the creditors to cancel the remaining debt.
Again these solutions will affect your credit record, but, in my opinion, they’re well worth it for the peace of mind. Also lenders are unlikely to accept either of these options unless you’re really struggling and things aren’t likely to get better, for example, if you’ve had to give up work due to an injury or sickness. If that’s your position, I’d suggest prioritising your wellbeing over your credit rating.
6. Suggesting the right formal solution
Sometimes insolvency is the right answer. That might be bankruptcy, an individual voluntary agreement (IVA), or a debt relief order (DRO). I’m not going to go into the difference between these solutions here but suffice to say if a debt adviser suggests one you should consider it carefully. People get scared of formal debt solutions but they’re a protection, not a punishment. It’s unreasonable for you to spend decades paying down debts. If the alternative is a DRO, bankruptcy or an IVA you should consider it.
Each solution has its pros and cons and terms and conditions attached. Read these carefully and make sure you understand what you’re doing and that it really does meet your needs before you sign up.
I hope this helps you understand what a debt adviser could do to help and why it can really help to speak to them as quickly if you’re struggling with debts.
If this post has helped you, have a listen to these two episodes of my podcast, Squanderlust:
Episode 11: Interview Money A + E - I spoke to two former debt advisers about how their own experiences of financial troubles inspired them to help others.
Episode 23: Debt Advice Avoidance - Why do people delay getting advice? We talk about the psychology and give an overview of what happens when you meet with a debt adviser.
If you’re not yet missing payments and you’re pretty sure your debts come from overspending, in other words you think you could pay them back with some lifestyle changes, here’s some inspiration from people who have done just that.