With the cost of living soaring and disposable incomes under pressure, it's getting harder to make ends meet. Here's how to reclaim a slice of your spending.
This article was first sent to Fools as part of our 'The Good, The Bad and The Ugly' email campaign.
Earlier this week, I read that the price of bacon has doubled over the past year. Thus, `bringing home the bacon' is now twice as expensive as it was in 2007!
Joking aside, the cost of goods and services has been rising relentlessly over the past year or so, especially for essentials such as food and fuel. This has piled more pressure on household budgets, forcing many people to cut back on non-essential spending, treats and so on.
One way to fight back against the tide of rising prices is to become a `wiser miser'. By this, I don't mean that you should live like a pauper and refuse to stand your round at the bar. Instead, it's all about making sure that you boost the power of your pound by spending sensibly.
Earn as you shop
As well as ditching your daily Starbucks habit, it's a good idea to look for ways to boost the money coming in. One simple idea is to start using a cashback credit card. Put simply, with a cashback credit card, part of your spending is refunded to you. In other words, you earn a modest rebate as you spend. Typically, this refund is paid to you at yearly intervals, usually via a cheque or a credit to your card account.
It's important to note that cashback credit cards aren't for everyone. In fact, they should be used only by those people who have the discipline to ensure that their monthly statements are repaid in full. Otherwise, the interest that accrues from borrowing on plastic will vastly outweigh the cashback earned.
That said, there are some cracking cashback deals on offer at the moment, as the following table shows:
Top three cashback credit cards (for spending of £300 a month)
Card | Cashback offer | Cashback on £300pm (£) | Typical APR (%) |
|---|---|---|---|
Intro: 5% for 3 months on up to £4,000. Standard: 0.5% on up to £3,500; 1% on £3,501-£10k; and 1.5% on £10,001+ | 58.50 | 18.9 | |
Egg Money MasterCard | 1% of all spending (minimum payout of £5) | 36.00 | 12.9 |
0.5% of all spending | 18.00 | 8.5 |
As you can see, of the credit cards currently available to new customers, Capital One pays 0.5% cashback, which seems to be the standard rebate nowadays. Egg Money doubles this to 1%, and the American Express Platinum Cash Back Card tops our table, partly thanks to its incredibly generous introductory offer. However, Amex cards are not as widely accepted as MasterCard and Visa, so you may wish to carry a back-up cashback card for use in certain retailers.
The above table assumes that you spend £3,600 a year on your cashback credit card. However, many cards -- including our Amex card -- increase your cashback rate as your spending rises. Thus, for big spenders, these cards can produce even greater returns.
Finally, in order to maximise my rebate, I try to put every single purchase on my cashback credit card. Over the past year, I've spent a fortune on my `flexible friend'-- hundreds of pounds a week, in fact. Thus, I'm looking forward to receiving a bumper payout any day now, perhaps as much as £300. To me, this is money for old rope!
Two bonus tips
1. Make sure that you always repay your entire monthly bill by setting up a direct debit for your full monthly repayment.
2. Never withdraw cash or transfer balances to a cashback credit card. This leads to hefty interest charges and defeats the point of earning cashback.