Yahoo Finance How to make the most of Bank Holiday season to transform your finances
It’s a bumper Bank Holiday season this year, with an extra day for the coronation of King Charles.
And while it’s always nice to enjoy an extra day of relaxation, now that we have three of them piling up in quick succession, you may be persuaded to use one to make a significant difference to your finances.
There are six jobs that could transform your finances, and should be manageable in one day, with enough time left over for a BBQ.
Spend an hour with a budget calculator
It’s not going to be the most thrilling hour of your life — but it could be one of the most rewarding.
Most people don’t bother drawing up a budget — they just start spending at the beginning of the month, and hope for the best. However, it’s by far the best way to get on top of your finances.
Before you start, you’ll need some recent statements, showing how much you tend to spend in each area of your life — from bills to groceries.
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You’ll also need some statements from expensive times of year, like Christmas and holidays. Some banks will do this categorisation for you, which can be really helpful.
You can then feed all of this into an online Budget calculator.
Hargreaves Lansdown has one, but there are loads of them online — including one on the MoneySavingExpert website.
Don’t worry if it shows that you spend more than you earn. You should think of this as your starting point, and your opportunity to play around with spending cuts, so you can be left with money at the end of each month.
Cut your costs — hit price comparison sites
If you haven’t switched your phone or media company in the past year or two, then there’s a good chance you’re paying over-the-odds.
Sit down with a recent bill, and a price comparison site and see where you can save.
Even if the thought of making a change is too much hassle to bear, you can use this information to haggle with your current provider for a better deal. The most effective approach is to call and say you’re thinking of cancelling because you’ve had a better offer. They may well cut your bill to keep you.
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If you have had your mobile phone contract for the minimum period, before getting excited about the prospect of an upgrade, check how much you could save by keeping your phone for a year on a sim-only deal.
Do a direct debit cull
If you bank online, this is incredibly straightforward, because they will all be listed together and you can cancel in a couple of clicks.
It’s best to calculate the annual cost of each direct debit, then weigh up whether you are getting enough value from the spend. If not, check you’re not subject to any minimum period, and if you’re free to do so, you can cancel.
Set up the direct debit that will change your life
This process will free up some cash on a monthly basis, so set up a direct debit to come out of your account on pay day and into whatever is your top financial priority.
Your priority will depend on your circumstances. If you have expensive short-term debts, it usually makes sense to pay those down first.
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Then, if you don’t have an emergency savings safety net of three to six months’ worth of essential expenses, you should prioritise paying into that.
At the same time, you can consider your pension. If you already have these things under control, you can consider investing.
Use a pensions calculator
Most of us have very little idea how much we’ve saved for retirement — let alone how much we need, which makes it impossible to know whether we’re on track.
There’s a three step process that should be fairly quick and painless, which will help you understand your position better.
Start with how much you need. The Pensions and Lifetime Savings Association has some useful rules of thumb worth exploring.
For a moderate retirement it says a single person needs to spend £23,300 a year and a couple £34,000. This gives you a food budget of just £74 a week and an annual clothes budget of £791 a year. It lets you do a bit of home decoration and spend two weeks in Europe and a long weekend in the UK. You can also afford a three-year-old car, replaced every ten years.
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For a comfortable retirement, it says a single person needs to spend £37,300 and a couple £54,500. It boosts the food budget to £144 a week, and clothing to £1,500. It allows for a new bathroom and kitchen every 10 or 15 years, three weeks in Europe, and a two-year old car replaced every five years.
Once you know what you need, you need to understand where you are right now, so dig out details of any pensions. Then, finally, you can feed it into a pension calculator, which will work out the contributions you need to make to be on track for the pension income you need.
Check any NI gaps
Under the new flat rate state pension, you usually need 35 years’ worth of qualifying national insurance (NI) credits to claim a full state pension.
If you have gaps in your employment record, you may end up with a lower state pension — or none at all.
You can use the state pension forecast calculator on the gov.uk site to see how much state pension you’re predicted to get. There’s a link in the calculator to let you check for gaps in your NI record.
If you have gaps, it’s worth checking with Department for Work and Pensions, because you may be able to claim benefits for these time periods that come with a voluntary National Insurance credit.
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Otherwise, if you can afford it, you can also buy credits. A full year costs around £800 and for each year bought you get 1/35th of a year’s state pension — around £275. This means you effectively earn your money back in around three years, so it can prove good value.
If you’re a man born after 5 April 1951, or a woman born after 5 April 1953, you can currently plug gaps in your national insurance record going back to 2006. From the end of July, you’ll be restricted to the last six tax years, so it’s worth going through this process before the end of July — just in case.
Before you spend any money, however, it’s vital to check that it is worth it in your circumstances by calling the Future Pension Centre.
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