In a Money Detox, you want to find and eliminate the things that are poisoning your finances right now – and then look for ways to make the rest of the year easier and less stressful. These seven ideas here are aiming for the biggest long-term gains with the least pain.
You don’t have to have a debt problem for these ideas to be useful. They will also help if you are saving a house deposit or thinking about starting a family. 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
Make sure you want all your Standing Orders and Direct Debits – that’s money just vanishing from your salary and a surprising number of people have ones they have forgotten about. Also check with your partner, that you aren’t duplicating things like Netflix, Amazon Prime or Spotify subscriptions, or insurances.
Paying the rent, council tax, credit card repayments, utility bills and TV license by DD or STO is great – it saves you time in making the payments and stops prevents harm to your credit if you pay them late. In fact if you are paying any of these manually, why not set up a Direct Debit to automate it? A money detox means making everything as easy as possible!
But have a long hard look at the rest – magazine subscriptions? paying for ad-free apps? a free trial that you never cancelled? insurance you don’t need any more? If you decide you don’t want a service or a subscription, remember to tell the firm, don’t just cancel with your bank.
Cancelling a regular charity donation can be a difficult decision. 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.
There is a new app that helps you with this: Bean. It checks your bank account and credit cards for regular payments and when you tell it to cancel one, it informs the firm not just your bank.
2) Pay lower bills
If you haven’t changed gas and electricity suppliers in the last year, see what you could save by switching. There are lots of comparison sites, I like MoneySavingExpert’s Cheap Energy Club and so do more than two million other people. This looks at all the suppliers to find you the cheapest deal now, then it will email you in the future when you can again save money by switching.
For example, I signed up in November 2016, then a year later I got an email from the Cheap Energy Club saying my fix was ending and unless I switched again, I would be on a very poor variable rate tariff. Did my energy company tell me I was moving onto a rubbish rate? No, it did not :(
So by joining the Cheap Energy Club 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 be able to switch to a cheaper tariff, see How to cut your water bills.
3) Get a better bank account
In Britain, you are more likely to get divorced than switch banks. That isn’t because we love our banks but because it seems too complicated or scary to try to change. But it isn’t difficult to do!
Most banks 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 seven 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.
So look for an account which sounds right for your banking needs – are you often overdrawn or never? Or get cash back by switching!
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 in 2018 there are some great 0% deals on offer.
Make a list of your debts and the interest rate you are currently paying. Then read up about “snowballing”, that’s 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.
Did you list your mortgage as one of your debts? Interest rates edged up at the start of November 2017 and another rise is expected in 2018. If your fixed rate has ended, you may be able to cut your interest rate by switching now, but even if you can’t cut your costs much, it’s good to get a fix for as long as possible so you are protected against future rises.
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 approaches – pick one of them for 2018:
- open a savings account Open a new account, not with your current bank. You want to be able to get at the money but not be tempted to dip into it too 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.
- 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. See the reviews here: 2 automatic savings apps.
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 workplace 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 with investing.
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.
Which will you do first?
You don’t have to do everything here all at once. You could plan one a week if that seems more realistic. Perhaps do one that sounds challenging, then an easier one. If you have a partner, split them between you. At the end, you are going to be in a much better financial shape!