If you want to make sure you're getting the most from every pound you earn, follow this easy guide.
If you have kids, you'll know how quickly money disappears - indeed, a recent report from Liverpool Victoria found that the cost of raising a child, from birth to 21, is now estimated to be a whopping £180,000! Unsurprisingly, many parents find they must make sacrifices to cope with this financial pressure, with savings and holiday plans being hardest hit.
But if you're careful with your cash, there are ways to make it go further. What's more, thousands of families in the UK are failing to claim money that is rightfully theirs. So if you need a bit of help maximising your family's finances, here are five pointers to start you off!
1. Budget
OK, this is an obvious one, but before you can really attack your finances you need to work out how much you have coming in, and how much goes out each month. From here you can look at each expense in turn and figure out how you can whittle it down - remember, every penny counts!
If you don't already have a budget (or would like to improve the one you have) first find or print off your last six month's worth of bank statements. Now using the Fool's Statement of Affairs calculator, enter all of your income details (salary, other income, child benefit etc) as well as details of your expenditure (mortgage/rent, bills, council tax, loan repayments etc). If you have access to Quicken/MS Money you could use this to do the hard work for you.
Now, when you deduct your outgoings from your income you should hopefully be left with a positive value (if not, you need to follow the advice given here). You job now is to look at each expense and work out how you can cut it down. You could move expensive credit card debt to a 0% card, replace high interest loans with a cheap personal loan, switch energy supplier, check your council tax banding, save money by paying your bills by Direct Debit or get a water meter installed for a start. If you aim to shave something from each expense, however small, it soon adds up!
Be warned, although paying by Direct Debit usually saves you money, it can cost you more, depending on whether you're charged for the privilege. Home and motor insurance are two major culprits, with some providers charging up to a shocking 37% APR if you want to pay in instalments - so try to pay them in one go, if you can. Also, make sure you also check for dead Direct Debits - it's estimated that around a fifth of us are guilty of forgetting to cancel these, so we're literally giving money away!
It's also worth keeping a spending diary for a week in which you note every penny you spend - that means every coffee, newspaper, parking costs, sandwiches, the odd chocolate bar - everything! You'll probably be shocked when you see how much you're spending, so now see what you can eliminate.
2. Benefits
Now you've made your budget and hacked back those expenses, it's important to ensure you're also claiming everything you're entitled to. If you have a child under 16 (or 19 if in full time education) you should be receiving Child Benefit, currently £17.45 for the eldest child, and £11.70 for each additional child). If you're caring for a child whose parents have died, you may be entitled to Guardian's allowance.
Additionally, if your family income is no more than £58,175 a year (£66,350 if you have a child under one) you may be entitled to Child Tax Credit. This is a means tested benefit given in two parts - a family element (worth up to £545) and a child element (worth up to £1,745 per child). It's estimated that nine out of ten families can claim, so it's well worth checking. And if you're less than five months pregnant (i.e. your baby is due after 1 April 2007) the length of time you are entitled to Statutory Maternity Pay will increase from six to nine months (26 to 39 weeks) as long as you meet the conditions.
3. Savings
Once you've made sure your expenses are minimised and your income is maximised, it's time to check on your savings. After all, there's no point watching the pennies if you're not getting the best return on your cash.
ISAs
Assuming you're a taxpayer, the ideal place to stash your cash is a tax-free account - and cash ISAs are probably the simplest tax free vehicle to use. Top accounts of the moment include NS&I's Direct ISA, paying 5.55% AER to those investing £1,000 or more, or the Kent Reliance BS Direct mini cash ISA, paying 5.21% AER for investments of £1 or more.
We can, of course, each only invest £3,000 per year into an ISA. If you wish to save more, a good savings account is vital. Current best buy savings accounts include ICICI's HiSAVE account, paying 5.45% AER on savings of £1 or more, and the Icesave account, paying the same rate on sums of £250+.
Tax Bands
And it's worth remembering that you also need to be canny about how you save your money - and that means couples making the most of their tax bands. By stashing your family's savings in the lower tax payer's name you'll keep more of your interest.
For instance, £6,000 saved in the ICICI account in a higher rate taxpayer's name would earn £196 in a year, after tax. Move this into a non-taxpayer's name and they'd keep £131 more - earning £327 over the year. But of course, this only works if you trust each other!
And if you regularly give to charity, find out if your company offers payroll giving, as the sum will be deducted from your pay before it's taxed. Alternatively, if one of you pays higher rate tax, make your donation in his or her name - a further 18% can be claimed back through their tax return.
Children's Savings
Don't forget to think ahead, too. The earlier you can start saving for your kids, the better, as they can benefit from years of compound returns and create a healthy sum that can be put towards school/university fees or even a house deposit. Current top savings accounts include the Halifax Children's regular saver, paying 10% AER, and Saffron BS's Ladybird account, paying 5.3% AER on balances of £1 or more. Don't forget the £100 rule, though - if your child earns any interest over this sum each year from money from a parent, you'll be taxed on it at your highest rate.
Child Trust Funds (CTF)
If you've received a CTF voucher, make sure you invest it as soon as possible - time is money! You can find a comparison table of equity based accounts here, and Yorkshire BS currently offers the top cash based account, paying 6.25%AER (including 0.7% bonus for 12 months).
And remember, if you or your children don't pay tax, fill in a form R85 to receive gross interest.
4. Childcare Vouchers
If you use a form of childcare, you'll know how the cost adds up. If your employer offers Childcare Vouchers, they're well worth signing up as you can potentially save £1,196, each year. What's more if both partners can join the scheme, that's £2,392, saved! It's also worth remembering that the Government offers free part time nursery or reception class places during term time for three and four year olds - find out more at the SureStart site.
5. Extras
So what's left? Taking advantage of every offer going, that's what. If you have a young baby, for example, you'll find supermarkets and retailers desperate to get your attention and they'll happily offer you savings in the form of coupons and vouchers in order to do so. Join the (free) Tesco Baby & Toddler club and The Boots Parenting Club and you'll receive discounts on all sorts of baby related items.
Plus, if you sign up to the all of the baby product supplier websites, you'll be inundated with coupons and vouchers. And if you think there's no point as you won't use them, shop at Tesco, as they will accept one coupon per shop for a product you haven't bought.
On a more serious note, remember that it is important to have the right amount of life cover if you have dependents. And that doesn't just mean cover for working parents - stay at home mums and dads need to have adequate cover, too. You may be able to save by linking your life cover to your pension by taking out a Pension Term Assurance policy. While you're at it, make sure your will is up to date - if you need to write one and you're quick, you can take advantage of Will Aid this month, and have it drawn up in return for a donation to charity.
So, follow these tips and whip those finances into good shape. You'll hopefully save a good deal of money, too! And to sign off on a final Christmassy note: if your little ones want to write a letter to Santa, check out Northpole.com and they can do so, for free!
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