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FOOL'S EYE VIEW
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By now many of us are nursing red-hot credit cards, having used them in more chip and PIN machines than you can shake a stick at. And although you'd like to stop spending, you know there is still Great Aunt Agatha's pressie to buy and a number of other bits and bobs that will soon add up. The prospect of starting a New Year in debt is a depressing one, so no wonder so many people decide to make organising their finances top of their New Year's resolutions list each year. However, help is at hand! I've rounded up ten tips that, if followed carefully could mean your 2006 (and your future in general) can be whipped into financial shape before it's even begun -- and leave you and your family richer, too. 1. Kill those debts! Firstly, you need to assess your situation and figure out your debts. Grab a piece of paper (or create a spreadsheet) and all of those statements and jot down how much you owe in overdrafts, credit card balances, personal loans and other debts. Make sure you write down the interest rate charged on each one too and list them in order of priority -- that means the most expensive first. Although the values may be scary, you're taking the first big step to destroy them, so don't give up! You now need to create a budget so you know how much money you have to pay off your debts each month. Then, by cutting back hard on your spending you can free up more cash to throw at your debts (most expensive first), which we call snowballing. Follow these tips and kill off those debts; just think how much money you'll have at the end of each month. Find out more in our Get out of Debt Centre. 2. Create a Rainy Day fund Once those debts have been dealt with you can start planning for the future. However, the one thing that can trip us up on our road to wealth is unseen circumstances -- the car could die a death, the house could require some immediate (and of course expensive) work or you or your partner could lose your job. Luckily there is a simple answer -- a rainy day fund. Essentially, this fund is a pot containing between three and twelve months' income that's hoarded away in a high-rate easy-access account. But don't get too excited, it's not there to fund impromptu shopping trips. Its role is to provide an emergency fund or cash cushion, should the unforeseen happen. Having that ready cash means that should anything happen, you have the ready cash to pay for it or enough income to see you through until you find a new job, thus avoiding the need for expensive loans/overdrafts. Take a look at your budget; work out how much cash you have left over at the end of the month and set up a standing order to squirrel a set amount into your rainy day account. If you and your partner trust each other you can reduce the tax payable on your savings by stashing the cash in the lower taxpayer's name. And don't let that money lie idle -- make sure the account you use earns a decent rate of interest. The ICICI HiSAVE account pays a whopping 5.15%AER, for example. You can apply for ICICI HiSAVE, plus many other accounts, in our Savings centre. 3. Mini-Cash ISAs All taxpayers know that the ways in which we can avoid paying tax are few and far between. One of the simplest methods, however, is to take advantage of our ISA allowances. For savings, as long as you don't intend to invest more than £4,000 each year, you could stash up to £3,000 away, free of tax in a mini-cash ISA account. Consider this: a higher rate taxpayer would earn £90 on £3,000 stashed in an account paying 5%AER. A lower rate taxpayer would be £30 better off with £120. But put that cash into a tax-free, mini-cash ISA paying 5%AER and all of us keep the whole £150 in interest! Remember, everyone over 16 is entitled to save up to £3,000 each year in a mini-cash ISA, so that's £6,000 per couple. You may also decide to use your ISA allowance to save your rainy day fund into -- indeed, if you won't be saving more than £3,000 in a year it can be smart to take advantage of all the tax free saving you can. Find out more about mini-cash ISAs in our ISA centre. 4. Start Investing Once your debts are organised and your rainy day fund is set up you may be in the luxurious position of having some cash left over at the end of each month -- and a good way to spread your risk (and potentially make some serious money) is by investing it. One of the best ways to do this is again, by using your ISA allowance. Did you know that, even if you already have a mini-cash ISA, if you're over 18 you could also invest up to £4,000 each year into a mini shares-ISA? And if you have between £4,000 and £7,000 to invest, you can forget the mini ISA options and choose a maxi-shares ISA. There are a number of fund options you can choose, but if you fancy investing with the minimum of effort, consider drip feeding cash every month into an index tracker fund via your ISA allowance -- with its low charges you'll keep more of your profits. And £100 invested each month over ten years could create a pot worth nearly £17,750, assuming growth of 7% after charges. Even after taking into account inflation that's still a healthy sum! Find out more about investing in our ISA centre. 5. Re-mortgage your home If your mortgage is reaching the end of its low-rate introductory period, save yourself hundreds, if not thousands of pounds each year by switching to a cheaper deal now. Re-mortgaging is one of the best ways to save money and can literally save you thousands -- it could even effectively let you have Christmas for free. And even after taking into account fees and surveys that may be required, you're likely to still be quids in! You can find some great deals in our Mortgage centre. 6. Pay more into your pension With pensions a hot topic of the moment, there's never been a better time to take a look at your own retirement plans. Most of us are guilty of not saving enough for retirement, mainly because we have so many other expenses that take priority. However, every pound paid in at age 30 is worth far more than a pound paid in at 55. This really is a case where it can pay to start as young as possible -- remember the miracle of compounding! Dig out your pension statements and take look at the projections given by your provider. Can you live on the pension it predicts? Can you afford to retire at the age you would like? If not, consider paying more into your fund each month. Remember, even a one per cent increase can make a significant difference over twenty or thirty years. If you can, try to increase your contribution one per cent now and then by another one per cent in two or three months. You may not notice the difference but your fund certainly will. Why not check out David Bach's theory in how to become an automatic millionaire. And pensions aren't the only way to save for retirement -- if you're not keen why not use your ISA allowance for long-term saving instead? Find out more about saving for retirement in our Pensions centre. 7. Overpay your mortgage If your biggest bill is your mortgage, you probably dream of the day when it's paid off. Just think of all that extra cash you'd have! And luckily, we no longer have to wait the 25-odd years that were required in the past. With the introduction of the wonderful, "flexible" mortgage, we can throw extra money at our home loans each month, safe in the knowledge that every penny will go to work against the debt straight away! For example, overpaying a 25-year, £100,000 mortgage at 5%APR by just £50 each month could save over £12,250 in interest and shave over three and a half years off the term. Fantastic! Why not work out how much extra you can afford to throw at your mortgage each month -- and get rid of that debt even faster? Find out more in our Mortgage centre. 8. Save for your kids If you have children you'll know all about expense. No wonder a recent survey revealed that raising a child until the age of 21 could cost around £166,000 -- almost the price of the average UK home! However, the Foolish can make their lives a little less fraught by planning for things like University (or even school) fees as soon as possible. Investing £50 a month into a cheap index tracker could produce a pot for a baby worth over £21,500 by the time he or she turns 18! So think twice before spending a fortune on toys as that cash could be worth a lot more to your child in years to come. And if your child received a Child Trust Fund (CTF) voucher, don't hang about -- open up a CTF account and get that money working as soon as possible. Find out more in our Saving for Children centre. 9. Grab all you can from work No, I don't mean raid the stationery cupboard! Find out what benefits are available to you and snap up all of the useful ones. Life insurance policies can be worth three or four times your salary to your dependents should something happen to you and usually cost you nothing. Childcare vouchers could save a higher rate taxpayer over £1,000 in childcare costs over a year. And employer pension contributions can add thousands each year to your pension pot. Find out what's available to you and make the most of free cash from work! 10. Spend less! Finally, now you've put all of this hard work into place and organised your finances both for now, and for the future, don't mess it all up by getting back into debt. Aim to spend less for everything you buy, take advantage of offers, phone around for competitive quotes for insurance, and consider switching to a cheaper energy supplier. Why not try to become a money saving maniac? What's more, try to make every pound work as hard as possible; move your savings promptly if your account's interest rate starts a downward turn, switch bank account if yours punishes you harshly for any slip up and use your ISA allowances. Find a better bank account or savings account right here, at the Fool. Follow these tips and your finances are going to be in great shape, come 2006. So go on, start as you mean to go on and make this one New Year's resolution that you actually keep -- after all, it could be worth thousands to you and your family!