FOOL'S EYE VIEW
How To Make Money In 2002

By David Kuo (TMFDragon)
January 10, 2002

Carburton Street, London -- Increasing your personal wealth goes beyond picking the right share or unit trust for your portfolio. It is about ensuring that your personal finances are in good nick and that you are clued-up on the financial opportunities that are available to you. And what is even more important is that you are ready and prepared to take full advantage of any opportunities that arise. Only when your personal finances are in order can you then start to look at the wider issue of investing, which in turn should help to increase your wealth further.

The most important aspect of improving your personal wealth is to ensure that you live within your means. Quite simply, it means that you must not allow your expenditure to exceed your income. It might sound simple but there are many of us out there who are easily led astray with the odd temptation here and there. Before you know it, monthly outgoings can soon outstrip monthly income. To make sure that your outgoings are always below your income, you need a budget. This budget doesn't have to be a complicated three-dimensional Excel spreadsheet, but if you can get your head around one of those things, then that's fine.

Normally, a simple list of what, and how much, you plan to spend each month will be more than adequate. And don't forget to build in a margin of safety into those numbers, just in case things don't quite pan out the way you expected. The next step is to total up those monthly outgoings and make sure they fall within your net income. If they don't, go back to the drawing board and see what you can reduce.

Take a look at some of the bigger items of expenditure in your budget. In most households, the largest item will probably be that painful monthly mortgage payment. Now you need to make sure that this item is right at the top of your monthly expenditure list. Mortgage lenders don't take too kindly to borrowers being late with their payments and they certainly don't like defaulters. Also, try and find time to pop into your bank or building society within the next fortnight to check out their latest mortgage offers. But before you do that, take a look at what these mortgage lenders are offering now. If your existing rate seems uncompetitive, then ask your lender why. To get a lower rate, you may need to negotiate with your mortgage lender or be prepared to move your business elsewhere.

Whilst we are on the subject of mortgages, this is also a good time to consider fixing your mortgage interest rate. It is never easy to determine whether the current cycle of interest rate cuts has come to an end. But the general consensus, out there in the marketplace, is that we are unlikely to see any further cuts in interest rates. The balance of opinion seems to suggest that interest rates will be kept on hold for a while before starting to wend their way higher. By fixing your mortgage interest rate at a competitive rate today, you are removing that element of uncertainty; namely the likelihood of interest rates going up and your mortgage payments stetching your budget.

Turn next to the total cost of your utility bills. These will include your gas, electric, water and telephone charges. There are some very competitive offers available out there right now and some service providers will even cater for one or more of your utility requirements. Gone are the days when you had to go to one provider for gas and another for your telephone.

Take your time and shop around. Find out just exactly what you could save by switching providers. Late last year, OFGEM, the gas and electricity regulator, said more than a third of all electricity and gas customers had switched suppliers. That still leaves two thirds of UK customers either totally satisfied with their provider, which seems rather unlikely, or suffering from the inertia bug. You could be surprised at how a bit of shopping around for the best deals on offer can help save on your utility bills.

Continue down your list of expenditures and find out just where you can make some savings. Focus on the bigger items first because this is where you will save most of your money. When you have finished, compare your revised budget with the old one. Hopefully you will arrive at a surplus, which you should put to work immediately and start to make even more money for yourself.

More: Start saving money -- visit the Fool's Mortgage Centre