FOOL'S EYE VIEW
Top Tips To Sort Out Your Cash

By Alison Hunt (TMFAlly)
May 31, 2005

How many of us vowed to sort out our finances as a New Year's resolution?

Although the good intentions were there, did you actually do anything about them? If the answer is no, here's your chance to redeem yourself!

Follow these tips and you can get your financial house in order – and the good news is, once set up your finances will just tick along, requiring the most minimal maintenance whilst increasing your wealth!

Debts

As we at the Fool often stress, you need to sort out your debts before you can consider saving. After all, what's the point in earning 4% net in a savings account when you're paying 18% on the balance of a credit card or loan?

Shift those expensive loans to better deals – a £5,000 loan with Barclays, charged at 14.9%, for example, could cost you around £812 in interest over two years. Moving this to the Cooperative Bank, however, charging 6.1% would cost you £323 - saving you around £489 over the course of the loan!

And there are even bigger savings to be made by moving that credit card debt to a 0% balance transfer card. Switching to the Egg card, for example, would mean not paying any interest until 1st December 2005 and moving to the Virgin Money card would mean not paying interest until February 2006!

But remember, the savings made from that low interest/interest free period are not meant to supply you with more money to spend. Use the money you save to overpay that loan and aim to pay off your credit card balance before you have to start paying interest again.

You can apply for a loan with the Cooperative Bank, or apply for an Egg or Virgin Money card in our Loan and Credit Card Centres. Find out more in our Get out of Debt Centre.

Savings

Once the debts have been dealt with, you can start thinking about saving. A rainy day fund is the first place to start. Stashing between three and twelve month's income away will provide an essential cash cushion – and if saved into a cash mini-ISA, £3,000 could earn over 5% tax free interest each year – or there are many savings accounts paying over 5%.

Once your rainy day fund is set up, you can decide what to do with any surplus cash each month. If you fancy investing, a maxi (provided you haven't already opened a mini-cash ISA) or an index tracking mini ISA will let you invest either £7,000 or £4,000, respectively, each year.

Investing £100 each month into a tracker with an average return of 7% could provide £17,202 after ten years. And after twenty years you'd have £51,041! Of course inflation will have eroded this a bit, but you'll still end up with a healthy sum.

And if your child was the recipient of one of the two million Child Trust Fund vouchers issued – don't forget to invest or save it! A recent report from Halifax estimated that over half of the vouchers haven't been used to open an account – which could be costing Britain's kids over £1.8 million each month (assuming 7% growth).

You can apply for a number of mini-Cash ISA and savings accounts paying over 5% in our Savings Centre and open Child Trust Fund accounts via our Saving for Children Centre.

Protection

According to a recent report by Insuresupermarket.com, one in ten of us does not have home contents insurance, believing buildings insurance to be enough. However, you are statistically more likely to be burgled than have your house burn down.

In addition to this, Halifax has found that 4.6 million of us take overseas holidays without travel insurance. Although most of these people probably return in one piece it's worth knowing that the cost of flying a patient with a broken leg back from the USA could be over $18,000!

Being properly insured is vital, especially if you have dependents – and shopping around can save you a fortune.

Find competitive cover in our Insurance Centre.

Retirement

Due to the fact we're now living longer than ever, many of us can expect to spend a third of our lives in retirement. Sounds great doesn't it – days spent pottering about rather than slaving away in the office? Well it won't be such a rosy picture if you don't have any money to live on.

According to a recent report by Clerical Medical, less than half of us (49%) currently contributes to a pension, with 55% of us not confident of a comfortable retirement. And over three quarters of us feel we should be doing more for our retirement. Well, we can all take action, today!

If you're already stashing money away each month into a long term, index tracker ISA/savings accounts then you're well on the way to building up the estimated £300,000 required to provide a modest retirement income. You can also set up your own cheap stakeholder pension to take advantage of the tax efficiency of pensions.

But if your employer offers a pension scheme, you'd be crazy not to partake, especially if your company contributes too, as this article shows. As a rule of thumb, you should aim to set aside half your age as a percentage of your salary – so if you're 30, you should be roughly setting aside 15%. This may seem like a lot, but remember, any contribution from your employer will help make up this figure, and you can lessen the pain if you boost your payments after a pay rise. Find out more here.

Why not increase your pension contribution today by just one percent – and repeat this in six months time? You may not even notice, but you'll be very grateful for that boost when you retire!

Find out more and open your own stakeholder pension in our Pension Centre.

If you take the time to follow these tips you'll have your finances in good shape in no time – and probably sleep easier at night!

More: Loans | Credit Cards | ISAs | Savings | Insurance | Pensions