FOOL'S EYE VIEW
Five Steps To £100,000!

By Cliff D'Arcy
September 8, 2005

If you stash away £500 a month under your mattress, how much money will you have after ten years? Yup, the answer is £60,000, of course. So far, so good, but here comes a harder question!

How much will you have if you save £500 a month for ten years in an investment that produces an average annual return of a tenth (10%)? Using the Fool's handy Savings Calculator, I calculate that this investment would grow to be worth £100,729. So, if you could find £500 a month to invest for the next ten years, plus the right investment vehicle, you could be trousering a hundred grand in 2015.

Okay, calm down and don't yell "I don't have anything like that kind of money!" You're absolutely right, because most of us have less than a tenth of last month's wage left come payday, and many of us have nothing to show for our efforts except a bigger overdraft! However, I'm going to show you a programme which could save the average household around £6,000 a year.

Speaking of 'average' households, UK residents' total post-tax income topped £800 billion over the past twelve months. Spread across 25 million homes, this comes to roughly £32,000 per household. In other words, I'm suggesting a plan to encourage the average household to save just short of a fifth of its take-home pay. Can this be done? I believe it can!

Anyway, enough waffle - let's get cracking on our five-step plan to find £500 a month.

1. Reduce your debt repayments!

I reckon that British borrowers pay around £70 billion a year in interest to banks. In other words, almost a tenth of our income goes down the drain as interest! Here are the three main culprits:

Mortgages: Our mortgage debt totals around £924 billion and, at an average annual interest rate of 5½%, this millstone is costing us a cool £51 billion a year. However, millions of homeowners who aren't enjoying a special-rate deal are paying their lender's standard variable rate, which can be close to 7%. Remortgaging to a cheaper deal could save a typical borrower £1,600 a year, which is more than a quarter of our £6,000 total.

Check out the handsome home loans in our Mortgage centre!

Credit and store cards: On top of our mortgage debt, we owe a further £56 billion on credit cards. About three-quarters (75%) of this debt is interest-bearing and, at an average annual rate of, say, 15%, it's costing us over £6 billion a year. Transferring these debts to a 0% credit card could save a typical household around £250 a year.

We have a deck of delightful 0% cards in our Credit Card centre!

Personal loans and overdrafts: These debts total £134 billion and cost us perhaps £15 billion a year in interest, or around £600 per household. If we shopped around for cheaper loans and bank accounts, I reckon that we could halve this bill to £300 a year, producing £300 for our savings kitty.

Have a look at our beautiful Best Buy personal loans and cracking current accounts!

Our total saving from step one is £1,600 + £250 + £300 = £2,150, so we're more than a third of the way there already!

2. Bash your everyday bills!

According to the Halifax, housing-related expenses rose by around a sixteenth (6%) in 2004/05, which is way above the level of general inflation (rising prices). I don't know about you, but I have close to twenty different Direct Debits and standing orders set up on my bank account, including monthly payments for my rent, council tax, gas, electricity, water and other bills.

Here is some cost-cutting advice to help you to slash your everyday housing and living expenses across the board:

Motoring expenses

If you have a car, you must read Ten Routes To Cheaper Motoring!, which includes dozens of tips to help beat rising fuel prices! Tremendous Tips For Motorists! will also help Britain's drivers.

Phone, mobile and Internet bills

• Broadband: If you surf the Web at home, read Get Faster, Cheaper Broadband Today!
• Home telephone: Make massive cuts to the cost of calling local and national numbers by reading tip six of this article. For international calls and calls to mobiles, call1899 is streets ahead.
• Free PC-based calls: Want completely free PC-to-PC telephone calls via broadband? Check out Skype, VoIPCheap, Sipgate or Vonage.
• Mobile phone: You can cut the cost of your mobile phone by reading this article and comparing tariffs at Switch with Which?
• Rip-off numbers: Don't dial expensive non-geographic 0845, 0870 and 0871 numbers. Instead, find geographical alternatives at Say No To 0870. Also, don't call rip-off 118 directory enquiry services; instead, use BT's free online service at 118 500.

Fool Partner uSwitch will help you to cut your communications costs!

Utility bills

• Energy: Two out of three households - that's sixteen million - have never switched gas or electricity supplier, even though the average saving is around £170 a year, according to Fool partner uSwitch. Pay by Direct Debit for the best discounts, and beware: 'dual fuel' offers aren't necessarily cheaper. Furthermore, going green (being a little more energy-conscious) can lop up to a fifth off your energy bills. Learn more at Save Energy and the Energy Saving Trust.
• Council tax: Fed up with council-tax rises? Read Save Money On Your Council Tax.
• Water: Water bills on the high side? Read Easy Ways To Slash Your Water Bills.

Other bills

• Holidays: After running a home and car, holidaying is one of our major expenses. You'll find cheaper holidays, flights, hotels and hire cars at ebookers, Expedia, Lastminute and Travelocity. Also, check out our Ten-Point Checklist For Holidaymakers.
• Groceries: A £10-a-week saving comes to £520 a year. Grocery websites Fixture Ferrets and Trollydolly should help, as will coupons, vouchers, 'loss leaders' and money-off deals.
• Regular payments: Banking group BACS reckons that a typical household could save £203 a year by paying bills by Direct Debit. It also stops fines for missed payments, especially when you're on holiday! Additionally, are you wasting £50 a month by not tracking your bank account properly? Watch out for 'derelict debits' and 'standing disorders' - automatic payments for services that you no longer need or use, such as club and gym memberships, unwanted insurance policies, mobile-phone rentals and magazine subscriptions.

Another trick is to learn to haggle: read The Best Ways To Pay Less! If you don't fancy striking a bargain yourself, these price-comparison websites will do the spadework for you. You'll find massive discounts on books, CDs, DVDs, electrical appliances and electronic goods on the Web. For example, I recently bought a £410 digital camera for £250, saving £160 (39%) off the Recommended Retail Price. Result!

3. Cut back on frills!

• Smoking: Giving up the wicked weed could save a twenty-a-day cigarette smoker a tidy £1,825 a year. See the official NHS Giving Up Smoking website.
• Takeaways: Having one less take-away meal each week could save £20 weekly, or £1,040 a year.
• Packed lunches: Sandwiches, snacks and drinks can easily cost £5 per working day. Bringing a packed lunch to work costs me roughly a quid a day, producing a daily saving of £4.
• Television: A typical premium digital TV package can cost £40 a month. If you can live without dozens of film and sports channels, you could switch to a cheaper basic package, or enjoy the fee-free Freeview digital service.
• Gyms: By ditching your private gym membership and using local sports and council facilities, you could save £500 a year.
• Coffee: A twice-a-day trip to Starbucks adds up to somewhere around £1,800 a year. Is your caffeine habit making you poorer?
• Gambling: We spend around £5 billion a month on flutters, most of which are losing bets. The National Lottery is a particularly bad wager: expect to lose three-quarters (75%) of all the money you spend on tickets. As I've shown before, the Lotto is a tax on people who aren't good at maths! A £5-a-draw routine is an outlay of £520 a year, with an expected return of about £130. A loss of £390 a year? No thank you - I'd rather invest my spare cash to get rich slowly!
• Newspapers: Could you do without your daily read by surfing a few news, sport and financial websites during your working day? Reading a book during your daily commute could save you 50p to a pound a day, or up to £250 a year. As for magazines, buying an annual subscription could knock up to two-thirds off the usual price.
• Alcohol: Ten pints of beer a week costs up to £30 a week, or over £1,500 a year. Halving your alcohol intake, or meeting friends at home more often, could halve this annual expense.

4. Swap bad guys for Best Buys!

There are tens of thousands of bad financial products out there - probably 98% aren't worth having. Here are some suggestions on finding the 2% that are!

• Savings accounts: There are thousands of crappy savings accounts, but only a handful pay more than 5% a year before tax. Learn more in Three Steps To Becoming A Super Saver and pop into our Savings Centre. We Brits have £541 billion on deposit, so an extra 2% a year means £10 billion in extra interest!
• Current accounts: To avoid pathetic credit interest rates and rip-off overdrafts, read my latest advice in Bag A Better Bank Account Today! and visit our Online Banking Centre.
• Insurance policies: If you don't shop around for protection or buy on the high street, expect to pay premiums up to three times higher than those charged by Best Buy providers. It's easy to find cheaper life, health (income protection and critical illness cover), home (building and contents), motor (and breakdown), travel and other insurance policies online, often with discounts for Internet applications. Try our Insurance Centre, for a start - you could save £1,000 a year!
• Payment protection insurance (PPI): Of all the financial rip-offs, this is perhaps the worst. As I explained in tip six of Six Shockers To Shun!, banks are making £4 billion a year from selling these shoddy, hugely overpriced policies. When borrowing money, say no to PPI!
• Extended warranties: I view these as a complete waste of money, so I never buy them when I purchase electrical or household appliances. They are hugely overpriced - you'd be better off self-insuring by paying a little more into your emergency fund.
• Investments: Would you pay high charges to a fund manager who fails to beat the stock market over the long term? Most investors do! Read Three Ways To Invest For Less to buy stocks and shares more cheaply. Also, call into our Index Tracker and ISA centres.

5. Boost your income

• Families: Ten Ways To Boost Your Family Finances includes advice on budgeting, claiming Child Benefit and Tax Credits, plus cutting your tax bill by up to £1,066 a year with childcare vouchers.
• Rent a room: Alternatively, you could take in a lodger. By letting a room in your house, you could make an extra £4,250 a year without paying tax. Learn more here.
• Claim what's yours: Don't forget to claim all the benefits that you are entitled to. Independent advice website EntitledTo is a great guide, or you can call the Benefit Enquiry Line on (freephone) 0800 88 22 00.
• Dodge the taxman: Another great way to boost your finances is to pay less tax, so read Eight Ways To Hack Your Tax Bill and Ten Ways to Give Less To The Taxman.
• Work more hours: A part-time or second job could help you to raise more cash. Even a waiting or bar job for, say, eight hours a week could mean an extra £2,000 a year before tax. Alternatively, a few hours of paid overtime or an extra shift now and then could do the trick.

Of course, not everyone will be able to find £500 a month to invest. However, if you aim high and fall short, you'll still find yourself in much better shape financially. If you really like a challenge, how about trying to Make A Million!

Anyway, where should you invest this money for the next ten years? I'm always going to suggest the stock market, aren't I? Don't be afraid, because it's not frightening as you might think, as I explained in The Stock Market Needn't Be Scary! In my view, a cheap, simple index tracker is particularly suitable for lazy or learner investors; you can invest in the UK's biggest index tracker here.

Finally, for the record, my wife and I have invested at least a third of our combined gross (pre-tax) income over the past year, so it just shows what can be done with a decent income and a determination to save!

More: Let us help you to find better credit cards, personal loans, mortgages, savings accounts, bank accounts, insurance and investments.

Cliff owns shares in HBOS, parent company of the Halifax.