Be wealthwise

In the grand scheme of things, it might seem that money doesn't matter all that much … well, not compared to health and happiness anyway.  But the reality is that life’s a whole lot easier and, in most cases, more enjoyable if you’ve got at least enough money to take care of the basics (and by that we don’t mean paying for Sky +!).  As a parent, too, you have a responsibility to provide for your children.  Given that the cost of raising a child from birth to age 21 is now estimated to be over £180,000, that’s quite some responsibility!  And that doesn’t even take into consideration the cost of putting a roof over his or her head!  So it all boils down to a need to look after your finances and be wealthwise.

Here are our top ten tips on how to make the most of your money ...

1. Make the effort, invest the time
2. Set budgets
3. Keep track of what you spend
4. Ditch the debt
5. Make the most of your assets
6. Shop around
7. Live simply
8. Take advantage of tax incentives
9. Generate passive income
10. Protect yourself

1. Make the effort, invest the time

The bottom line is that, in order to manage your money effectively, you need to invest time and effort.  Easier said than done when you don’t have a single spare moment and, if by any chance you ever did, you’d prefer a long hot bath to a cold hard budget!  However, there really is no way round it.  Even if you’ve got a partner with a head for figures (of the numerical sort) who’ll happily take control of the family finances, it’s still important for you to know what’s going on.  Too many widows and divorcées have learnt that lesson the hard way!

The more time you are prepared to invest in managing your money, the greater the return on that investment.  And, of course, the sooner you start managing your own money the better.  In essence, you need to think about the following four key questions:

• What are your financial goals?  For example, do you want to buy your own home, go on an overseas trip or be able to send your children to private school or university?
• By when do you want to achieve them?  For example, by your child’s 18th birthday.
• What funds do you have available to start the ball rolling?  For example, your monthly salary, annual bonus, anything already in a savings account, etc.
• What risks are you prepared to take to reach your targets?  For example, are you prepared to risk losing your money for the sake of a greater potential return?

It might be worth you and your partner answering these questions separately, and then coming together to talk about what you’ve written and agree a joint approach.  Your answers will inform the financial choices you make and help give you the motivation to economise where necessary.  It’s much nicer to forgo that cappuccino for the sake of your child’s education than just because you’re trying not to spend too much!

2. Set budgets

Once you have a clearer picture of what you want to achieve financially, it’s time to begin budgeting (if you haven’t already!).  A budget is simply a list of your income - money you earn or are given - balanced against all your outgoings - shopping, bills, haircuts and so on.  If you’ve got more coming in than going out, you’re okay … and should even be able to put aside some savings.  But if you’ve got more going out than coming in, you’re potentially in trouble.  It sounds so obvious, and yet personal debt in the UK currently stands at around £1,300 billion!  There was a 59% rise in the number of people declaring themselves bankrupt in 2006 (compared to the previous year) and a 67% rise in the number of homes being repossessed.  So, even if we know the theory, many of us are clearly failing to apply it in our everyday lives.

To create a budget, sit down with your account details and work out exactly how much money comes in each month and list it.  Then, in a separate column, list your outgoings.  This tends to be a bit more complicated, so divide it into categories to make it simpler.  (Some categories might need to be estimates at first, until you have followed tip 3 and actually tracked your spending.)  These will probably include mortgage or rent, insurance, phone bills, water, TV licence, and so on.  Remember to also take into account things like petrol, road tax, car insurance, childcare, gym membership, holidays, and so on.

3. Keep track of what you spend

Once you've written up your budget, you need to check if the figures are accurate.  The only way to do this properly is to monitor your spending for a few weeks.  Check your bank and credit card statements, and carry a little book around with you so you can write down where your cash goes.  Aim to keep a record of everything you spend.  It may be a bit tedious, but it’s the best way to start seeing your spending patterns.  What do you buy regularly, what do you buy occasionally?  What’s a necessity, what’s a nice-to-have?  What had you forgotten all about?  You’ve always wondered how that fifty quid from the cashpoint could disappear so quickly - now’s your chance to find out!

The whole point of this exercise is that, once you know where your money really does go, you’ve got a chance to consider using it differently.  Of course, there may be very little room for manoeuvre because things are so tight already.  But many of us will find that we fritter away bits of money here and there buying luxuries or so-called ‘compensations’ - in other words, things to make up for our lifestyle, like ready meals because we’re too tired to cook, a bottle of wine to drown our sorrows or a holiday to escape our real life!  Recognise what you might overspend on, what your needs are and how your lifestyle affects your money.

Doing a budget forces you to face up to your spending and gives you a choice - you can carry on as you are and accept that you may never achieve your financial aims, or you can do something different and reap the rewards.

4. Ditch the debt

In the ‘old days’, when credit and store cards didn’t exist, it was a whole lot easier to live within your means.  If you didn’t have the cash in your hand, you simply couldn’t buy something!  Nowadays, it’s scarily simple to run up a debt that you’ve got little or no hope of paying back ... and people have killed themselves over it.  So save yourself the stress and only spend what you can genuinely afford.

If you’ve already got debts that are spiralling out of control, do something about them right now.  Contact the Citizens Advice or the Consumer Credit Counselling Service to get some help.

If your debts are under control - let’s say you have a mortgage but you pay it religiously every month - take steps to keep it that way.  Many advisors recommend getting rid of credit and store cards on the grounds that they make it far too easy to spend more than you should.  But, if you’re savvy, you can actually use credit cards to your advantage.  For example, if you put all your purchases on a decent credit card and pay off your bill every month, that leaves extra money in your account to earn interest or be offset against your mortgage.  But you know yourself best ... if having a card encourages you to give in to temptation, cut it up!  And store cards only serve one purpose - to make the retailer rich!

5. Make the most of your assets

It’s all very well to think about how you can save money in order to achieve your financial aims, but what about the things you could do to make money!  This is a positive, proactive approach to managing your finances.  Look at what you can to accumulate more money rather than simply trying to spend less.  The first step is to consider your assets, and your most important asset is probably ... YOU!  You could lose everything you own - your house, your car, your job, your bank account - but as long as you still had your earning ability, you could make it all back and more.  So take stock of your unique talents and abilities.  Think about your career and how you could go about achieving promotion and a nice fat pay rise.  Look for ways to demonstrate the positive impact you have on the bottom line, and make a strong case for the value you bring to your role.  According to a survey published in Grazia magazine in 2006, women are paid 30% less than men for doing the same job, because they’re too scared to ask for a pay rise ... and yet nearly half of those who did were given one! 

Consider alternative ways in which you might be able to use your skills.  What do you naturally do better than most people?  For example, ice cakes or spot typos or seek out bargains.  Is there any way you could turn these talents into profitable sidelines?  Or even a business?  How could you invest in yourself to improve your earning potential?  In addition, it’s worth contemplating other ways of making money from your existing assets.  Obvious examples include selling all your unwanted ‘stuff’ on eBay, refurbishing property or trading on the stock market (not for the faint hearted!).  Be creative and see what other ideas you can come up with.

6. Shop around

The internet can be an invaluable tool.  You can find websites that will compare everything from credit card interest rates and mobile phone charges to electricity and gas prices.  Use them to shop around and you could save several hundred pounds each year.  Not to mention what you could save if you switched your mortgage to a lower interest rate!  Many of us stick with the same providers year in year out because of lack of time, laziness, ignorance or some strange sense of loyalty.  And yet the competition is so tough out there that you can almost always find a better deal if you really look.  Try comparison sites like www.uswitch.com, www.moneysupermarket.com and www.confused.com.  Be prepared to actually ask for the best possible deal.  You may be surprised at what you get offered!

7. Live simply

One of the easiest ways to save money is to live simply.  Retail therapy offers a quick fix, a shot of euphoria that is over all too soon.  And then there’s hangover … the credit card bill!  The culture of working more to earn more to spend more just doesn’t add up.  Especially when having loads of ‘stuff’ to store, tidy and take care of only adds to the chores!

A simpler, pared-down life is far easier to manage, and often far happier.  Think before you buy.  Do you really need it or want it … or are you being persuaded that you do?  Watch your motivation.  Resist splurging to cheer yourself up or enhance your status.  You don’t need things to tell you who you are or impress others.  Buy less and buy better.  Connoisseurs don’t surround themselves with masses of cheap ‘tat’ from third-world sweatshops.  Instead, they purchase carefully chosen objects that they can cherish and pass on to the next generation.

Live a little more frugally.  It’s better for the planet and better for you and yours.  Okay, it may feel a bit like going back in time and becoming 1940s housewife, but these days that’s quite trendy!  (Well, amongst certain circles anyway!)  Have a look at websites like www.frugal.org.uk.  Turn your back on the crazy consumerism that’s so endemic in the Western world and concentrate on making more of less.  No more ready meals ... a nice tasty risotto made from home-grown vegetables and costing about 20p per portion, that’s the way to go!

8. Take advantage of tax incentives

One way to be wealthwise is to avoid paying tax ... but no, we don’t mean breaking the law or moving to Monaco (tempting as it may be)!  We simply mean finding out about all the tax incentives on offer and making good use of them.  For example, it’s worth while investigating:

• Individual Savings Accounts (ISAs) - you can save a certain amount each year without paying any tax on the income you receive
• Child Trust Funds - again, you can save a certain amount each year, for each child, without paying any tax
• National Savings and Investments - more tax free savings opportunities
• Premium Bonds - a chance to win big, with no tax to pay on anything you do win (and better odds than the National Lottery)!
• pension plans - the Government encourages you to save for your retirement by offering tax relief on your contributions into a personal pension plan
• Child Tax Credits and Working Tax Credits - the name’s a bit misleading and we’re not sure it’s really got anything to do with tax, but it’s one way in which the Government aims to support families with children and lower incomes

And, of course, there are all sorts of other clever things you can do to avoid paying unnecessary income tax, capital gains tax, inheritance tax and so on.  However, here at mummo we really can’t claim to be expert on any of this ... and you do need an expert to make sense of it all!  So the best thing to do is seek proper financial advice.

9. Generate passive income

There are three main types of income: earned, portfolio (in other words, interest and dividends paid on a portfolio of investments) and passive.  And these days, the big buzz is about the last of these!  Passive income is the kind of income that keeps on landing in your bank account even when you’re doing something completely different ... like lying on a beach doing absolutely nothing!  That’s the beauty of it.  However, it’s a misconception to think that you never have to do anything to get it - if that was the case, everyone would be rich!  As it is, you may have to invest a significant amount of time, energy and money to set things up so that they’ll generate a passive income later on.  It’s often received from property, from royalties paid on patents or license agreements, from network marketing or from internet-based activity.  For example, you might buy a property and rent it out, or write and publish an e-book that you then market and sell online via a network of affiliate sites.

The general idea is to create multiple streams of passive income, so that you don’t put all your eggs in one basket!  There’s lots of advice out there about how to do it.  You might like to take a look at well-respected wealth coach Nicola Cairncross’s website www.themoneygym.com for a start.  But really all you need is a little imagination ...  It’s an ideal project for maternity leave - get it right, and you might never have to go back!

10. Protect yourself

You may think it’ll never happen to you, but the scary fact is that identity theft is one of the fastest growing crimes in this country, costing the UK economy £1.7 billion a year.  An alarming one in four people have either had their identity stolen or know someone who has.  So it’s a good idea to do whatever you can to protect yourself.  Otherwise you could wake up one day to find that a fraudster has run up huge debts in your name!

Credit card theft is still the tried and tested route to stealing someone's identity, so keep those cards safe.  Shred your credit card slips and utility bills before throwing them away, as these can be a bit too useful to a fraudster.  And take care with your driving licence - the police now advise you to carry it separately from your credit cards.  Cards + driving licence = identity theft.

If you think you may be the victim of identity theft, contact CIFAS who will put your name on an alert file.  And, if you want to find out more about the whole sorry business, log onto the government website - www.identity-theft.org.uk.

Okay, so there it is, a whistlestop tour of the basics in managing your money.  There are lots of other tips we could have included but at the very real risk of risk of boring you!  The bottom line is, take the time to get to grips with your finances and you will reap the rewards.  Oh, and talk to an expert!