School for big spenders

By Sarah Modlock

4 May 2005

‘Disposable income' is the deliciously vague phrase we use to describe what we spend. In fact it's so user-friendly that we don't even need to put a figure on it. But you could make your money go further each month with just a few easy lessons.

Are you sitting up straight? Let's start with a show of hands – how many of you have a pretty good idea of your monthly disposable income? Here's a clue: it's not whatever is in your bank account on a Friday night. The truth is that many people drift from one pay cheque to the next on a wing and a prayer. And possibly a few credit cards.

If you count your overdraft, credit card or loan as disposable income, you're wrong. It's debt. Write out 100 lines: ‘I must not treat my credit card as cash'. Next, read the article on How to draw up a budget. It explains in simple terms how to carve up your cash between bills, credit cards – aim to clear them every month – and other debts. You should also try to set aside something for a rainy day. Only then can you truly describe what is left as 'disposable'. And even then, you don't have to spend every last penny of it.

Girls go straight to the bottom of the class with their bad spending habits, splurging three quarters of their disposable income compared to the two thirds spent by the boys, who tend to save and invest more. This is according to the end of term report also known as Alliance & Leicester's Wealth Tracker Index which reveals that the amount of money we deem disposable is on the increase from last year.

Boys also get gold stars for the way they deal with debt although overall, more than half of people in debt do not know – or care – how much they owe, say credit reference agency CallCredit. Apart from the obvious perils of being permanently in the red, this debt illiteracy can cause other problems: 'With identity fraud increasing year on year the serious underlying message from this survey is there is too much consumer ignorance and apathy towards debt,' explains CallCredit's Alison Nicholson. ‘If people don't know what their commitments are how can they be expected to spot fraud before it becomes a major problem for them?'

Check your credit score here

Once you've done your budget homework and debt APR times tables, it's time for some more specialist subjects. Let's start with history. Because statistically we are more likely to get divorced than switch our bank accounts, you may have had a longer relationship with your bank manager than your spouse. But that certainly doesn't guarantee that he will bring you a cup of tea in the morning. Or show any loyalty. Take a good look around at what other banks have to offer. As with spouses, the grass may not always be greener but even the 'big four' banks are now starting to get the message that you don't like being taken for granted. Your own banking habits (no giggling at the back) may have changed over time, too and this could mean that an internet bank provides a more convenient – and better value – option. The same applies to your credit cards. Why spend your hard-earned cash on interest payments when there are so many 0% cards seeking your custom.

Time to put your lab coats on for a science lesson now. Hold your mobile phone provider over a Bunsen burner for a few seconds and they will probably admit you are spending more than you need to. So ask them to review your tariff and come up with a better deal. If they can't then log onto www.switchwithwhich.co.uk for impartial recommendations based on your calling habits.

While we're in the lab, put your landline, broadband, digital TV and utility deals under the microscope. USwitch (here in partnership with Yahoo!) makes comparing and switching as easy as ABC. The service is based on the most up to date information from suppliers and regulators and unlike traditional brokers, it shows you all of the suppliers, not just the ones that pay commission.

Our Maths lesson will demonstrate how forgoing your £1.50 cappuccino every morning on the way to work could save you around £500 a year to spend on anything from Jimmy Choos to an i-Pod.

Last period is Geography. Before you head off somewhere exotic – and I don't mean sneaking behind the bike sheds – pin down the best deal on a flight using the unbiased search facility on www.moneysavingexpert.com. Then sign up for expert Martin Lewis's weekly money tips and make your money go further.

Read Martin Lewis on Yahoo! here

A final word from this week's head prefect, David Elms of IFA Promotion - the organisation promoting the benefits of independent financial advice: ‘The uncomfortable fact is that few people can expect the 'Bank of Mum and Dad' to bail them out if borrowing costs rise. And the State no longer provides a comfortable retirement for those who refuse to save for the long term. Being on top of our finances has never been so important,' he adds, 'but people are increasingly living hand to mouth and storing up trouble for the future. It should take about an hour to note down regular income and outgoings and to identify what you can and cannot afford. If you need further help taking financial control and planning for the future, sitting down with an independent financial adviser is a great place to start.'

School's out for today but if you don't do your homework properly, you could find yourself in financial detention. Any more irresponsible spending and you'll go over my knee.