Lots of people plan a detox after Christmas, when their body is feeling sluggish and unwell after too much food and time on the sofa over the Christmas break… But any time of year is a good time for a Money Detox if your bank balance is feeling ill and your credit card bills are rising!
In a Money Detox, you aim to:
- hunt down and clear out the things that are poisoning your financial life; and
- find easy ways to make good financial decisions in future.
You don’t have to have a major debt problem for these ideas to be useful. They will also help with saving a house deposit or your long term planning. You will be getting the rewards of this Detox for a long while after it finishes!
Here are the seven areas to tackle:
1) Check your STOs and DDs
Get a list of all your Standing Orders and Direct Debits – you should be able to see them online and cancel them online too, which makes this a lot easier than a few years ago! This is money just vanishing from your salary so make sure you know what they all are and that you still want them.
Paying rent/mortgage, council tax, minimum payments to debts, utility bills and TV license by DD or STO is great – it saves you time in making the monthly/annual payments and stops credit record problems if you pay them late or forget. In fact if you are paying any of these manually, why not set up a Direct Debit to automate it? A money detox means aiming to make everything as easy as possible!
But have a long hard look at the rest – subscriptions to magazines? ad-free apps? a free trial you forgot to cancel? insurance for a washing machine you replaced last year? If you decide you don’t want a service or a subscription, remember to tell the firm, don’t just cancel with your bank.
There is now (autumn 2017) an app that helps you with this: Bean. It’s big advantage is that it checks not just your bank account but also regular payments you have set up from your credit cards.
Cancelling a regular charity donation can be a difficult decision – you may be short of money yourself but it still feels wrong… But if you are paying 20% interest on a credit card, then you are effectively borrowing the money that you are donating. It’s better to stop the donations until your finances are back in better order. Here are 7 ways to donate to charity that don’t involve giving money.
2) Pay lower bills
If you haven’t changed gas and electricity suppliers in the last year, it’s time to see what you could save by switching. Prices may be going up in spring 2017, so if you switch now you can lock in lower prices for a year or two.
There are lots of comparison sites, but I – and 2.5 million other people – like MoneySavingExpert’s Cheap Energy Club. This looks at all the suppliers to find you the cheapest deal now. For me the best bit is that it will email you in the future when you can again save money by switching. So by doing this now, you are making it easier to keep your bills as low as possible in future.
For water, check if a water meter could save you money. If you don’t have a meter, you are effectively being charged by the number of bedrooms you have. A simple rule of thumb is that most people who have the same or more bedroom as there are people living in the house can save by getting a meter. If you are on a low income or certain benefits you may even be able to switch to a cheaper tariff, see How to cut your water bills.
3) Get a better bank account
Go for an account which sounds right for you – are you often overdrawn? Or get cash back by switching!
Most banks now make it easy to move to a new current account. Their switching service takes care of everything, notifying all the people who send you money and the people you pay regularly, and it should all be done in 7 working days. If they get it wrong you will be refunded any lost interest, fines or charges that occur as a result of the switch in the first 13 months.
Changing banks is one of the very few times where having a bad credit record can help. If you would be refused a normal current account the great news is you can switch to one of the new-style basic bank accounts. They are good and have absolutely no fees, even if a direct debit is returned unpaid. See 4 good reasons to switch bank accounts for details.
4) Pay less interest
If your credit rating is good or excellent, you may be able save a lot of interest as there are some great 0% deals around for long terms. If you aren’t sure what your credit rating is like, this is a good time to check it.
First list your debts and what interest you are currently paying. Then read up about “snowballing”, the odd name for the fastest way to clear debt and end up with a great credit rating, and decide which of your debts you want to tackle first.
It’s important to do a “soft search” to see what deals you are likely to get. Just applying for a loan or balance transfer and getting refused would hurt your credit record.
Did you list your mortgage as one of your debts? If you are on a variable rate mortgage, consider switching to the longest fix you can find at a reasonable rate. Interest rates edged up in December 2016 in America, at some point rises will happen in Britain. You may be able to cut your interest rate by switching now, but even if you can’t cut your costs, it’s good to get a fix for as long as possible.
5) Automate saving an emergency fund
Having an emergency fund can really cut down on stress. Perhaps you try to keep some spare money in your normal bank account for a rainy day, but all too often you will find it isn’t there when you need it, you have spent it on something that wasn’t an emergency.
Here are two alternative ways – pick one of them for this Detox:
- Old-style – open a savings account Open a new account. Preferably not with your current bank – you want to be able to get at the money but not that easily! Then set up a standing order to move some money across to it the day you get paid. Paying in £25 a month may not feel like it’s enough, but it will build up over time. And it feels less painful as the money goes out automatically, you don’t have to make the decision to save each month. Of course you can always add more money if you have a good month!
- get an app that does it all Chip and Plum are two savings apps that move small amounts of money that you won’t miss out of your current account several times a month. I have reviewed them both here: 2 automatic savings apps and recommend them both.
6) Pay more into your pension
Most people should be paying more money into their pension!
If your work has a pension scheme but so far you have opted out, think again – unless your financial position is dire, you are effectively turning down free money from your employer, see Too much debt – should I still pay into a pension for details.
If you are in a work pension scheme, ask if you can pay more in. Increase your contribution by 1% now and see how that feels for 6 months. If it feels OK, go up another 1%!
If you are self-employed you also need a pension. This can be really hard when you are trying to balance having a life and expanding your business, but it is a necessity, not an optional extra that you can postpone until next year. Pension jargon is off-putting and making investment decisions seems scary, but so is the idea of being old with little money. So make a start, even if you start small. Nutmeg is an option that is worth considering if you don’t know where to begin.
7) Sign up to a cashback site
If you don’t already use Quidco or TopCashBack, sign up to one or both of them now! They may be able to save you small amounts on lots of purchases and over time the small amounts add up.
When you are just about to buy something it often isn’t the best time to investigate how cashback works and what you have to do, so sign up now and it will be ready for when it’s needed. See How to make the best of cash back for more details.
A lot of things to do…
You don’t have to do everything here all at once. You could plan to do one a week if that seems more realistic. Perhaps do one that sounds large, then one that sounds easier – anything to keep you going. If you have a partner, split them between you. At the end, you are going to be in a much better financial shape!