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Your Money > Family Finances Articles > 10 easy ways...
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By Sarah Modlock
Staying in is set to become the new going out as we draw in our horns while the credit crunch blows over. Nearly three quarters of households say they are planning to cut their spending. The study from Axa found that three quarters of households with a total income of £30,000 or higher will be driven to radical measures as middle-class inflation bites. The figures, taken from a poll of almost 6,000 people, show that some 15% of more affluent households have been forced to get a second job or to send a non-working member of the household out to work. And around one in five high earners will either stop saving or reduce pension contributions as concerns over the credit crunch hit home in the real economy. The most common reason for failing to save for retirement was lack of money left over at the end of the month (a third) whilst 15% blamed it on the burden of house prices and the same amount cited that paying debts will be the main obstacle. Other financial products such as protection insurance (which may be needed now more than ever) will also be dumped leaving as many as 1.1 million households could go without life insurance or critical illness cover this year. Restaurants and pubs will see a downturn in profits as nearly half said they will be eating out less to cut costs, while around one in five said they would socialise less with friends. "It's no wonder that households with above-average incomes are struggling to cope," says Axa's Steve Folkard. "A typical family in Middle Britain may have a higher than average income but millions are weighed down by high lifestyle costs and face tough choices as the strain on their finances takes its toll. One of the biggest issues however is that many seemingly well off households lack the motivation to tackle their problems. We've had it easy for so long and been happily spending without thinking of the consequences that now people aren't sure what to do. The aim of the AXA Financial Task Force is to investigate the economic issues facing Middle Britain and to propose recommendations for overcoming the psychological barriers to changing behaviour." 10 very easy ways to help prevent your own financial crunch 1) It is so obvious but if you have not sat down and worked out your budget for a while then this is where to start. Simply deduct absolutely all your outgoings and any debts from your income. If you have money to spare then consider increasing your debt repayments a little as you build up emergency and longer term savings. If you are not living within your means then it is time to look more closely at where your money goes and identify areas where you can cut back or make sacrifices. 2) Even if you are in the black it could pay to cut back on non-essentials now so that you have more options if the economy gets worse before it gets better. Go through your everyday spending to spot things to drop or reduce. Small changes can also help. It is a cliche but even ditching the £1.50 a-day coffee on the way to work will save you around £330 over a year. 3) Review your bank statements regularly for errors and check all your direct debits and standing orders. Research from bank Cahoot reveals that more than 80% of people continue paying for two or more months for a gym membership they no longer use. Magazine subscriptions and mobile phone contracts are other items that go unnoticed. Banking online will help you keep a closer eye on your balance as it shrinks throughout the month. If you want to avoid temptation then set up an automatic monthly transfer of half your disposable income so that it disappears to a separate savings account before you can get your mitts on it. 4) Check your credit records to ensure there are no errors. If you are still trying to get credit and being refused don't be tempted by expensive 'bad credit' deals or credit 'repair companies', it may just be because everyone is finding credit harder to get at the moment. 5) If you are managing to pay off little more than the minimum amount on your credit card balance then you are unlikely to ever clear the debt on it because constant spending and mounting interest eat into your repayments. Paying as much as you can afford will make a big difference to how much your debt costs and how long it takes to erase. If you can, cut up your card so that you are not adding to what you owe. 6) Make your debt cheaper if you can by switching to 0% interest cards or taking out a loan. Choice may be limited but don't take the first one you are offered. Make sure you do not turn several unsecured credit debts into one big loan secured on your house. And avoid 'debt consolidation' schemes and loans which charge fees and cost a fortune. www.payplan.com offers a free service. 7) Make all your bills as cheap as possible. You may be able to save money by switching everything that currently costs you something. Shop around for the best value bank account, overdraft, energy supplier, mobile phone company, landline and broadband and - if you can - your mortgage. 8) Ensure you have some emergency savings. The amount you save depends on your circumstances and lifestyle. For instance, if you rent rather than own your home then a landlord will cover costs for something like a broken boiler, although you may want to have the cash to get it fixed quickly if he is not around. As a rule of thumb, aim to save three months living expenses. Make sure your rainy day account pays the best interest while ensuring instant access. Once these are set up then concentrate on your longer term savings and investments. 9) When times are tough, many people either buy more insurance or ditch it because of the added cost. Before you do anything, talk to your employer about benefits on offer. You may find that you already have some cover. 10) Keep reviewing your budget, especially if your circumstances change. Save as much as you can afford and don't neglect your pension. You may need to cut back contributions for a short while but bear in mind we are living longer and healthier lives, so it is important to think about how and when to save for retirement. Useful links: |
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