MONEY COMMENT
Recycle Your Money

By Cliff D'Arcy
November 18, 2003

As well as being passionate about personal finance, I'm also a committed environmentalist. Not that I protest by climbing trees and digging tunnels like eco-warrior Swampy, but I aim to minimise my personal contribution to global pollution. After recycling all my waste paper, cardboard and packaging, glass, cans and so on, my rubbish collection is a fraction of the size of my neighbours'.

You can think about personal finance in the same way, because some of us are carrying more rubbish than others. When I think back to the bad old days when I had fifteen credit cards, I shudder! These days, my financial life is a lot simpler than it used to be, because I have regular clear-outs.

So, before you think about buying any more financial products, recycle your existing finances. Here are three tips for when you visit the money laundry:

1. Balance your savings and debts

A remarkable number of people have both savings and non-mortgage debts, such as a credit card. The problem is that it's a challenge to earn more than, say, 4% on savings, even in a tax-free cash mini-ISA. In contrast, many of the UK's most widely held credit cards charge interest rates of 18% or more.

So, if you have £1,000 on deposit and £1,000 on your credit card, you're actually paying 1000 x (0.04 – 0.18) = £140 a year in interest. You'd be far better off using your savings to clear your debts and then building up another rainy-day fund from your income.

2. Price-check your insurance policies

If you automatically renew your insurance policies with your current insurer(s) when you receive your annual reminders, you're missing out on big savings. It's possible to save hundreds of pounds a year by seeking out the best deals on home, motor and travel insurance. Unless you already have a Best Buy product, you should be able to find similar cover at a lower price.

Also, grab your bank statements and make a list of all the direct debits and standing orders for other insurance products, such as life, health, payment protection and breakdown insurance. If you've been paying these for a while, you're probably paying too much. For example, the cost of life insurance has fallen by around a third over the last four years, so switching your existing policies can save you a tidy sum – even though you may be a few years older.

3. Don't pay too much to invest

If you have money invested in managed funds (pools of money that are invested in shares and other investments), you could be a victim of the 'Ferrari Factor'. That's because, despite being highly qualified and informed investors, most fund managers fail to beat their industry benchmarks.

For example, according to Legal & General, its flexible, low-cost UK index tracker beat almost seven out of ten fund managers (68%) over the five years to 2002. Legal & General takes a mere 0.53% a year from your pot to manage your investment, whereas most fund managers charge around three times as much (plus they take 5% of your money upfront for the privilege). So, now you know where those high City salaries - and the flash cars - come from: your pocket!

Find better Savings | Credit Cards | Insurance | Index Trackers.