SPECIALS
Doing Your Financial MOT

By Rob Davies
May 24, 2001

Those of us driving cars more than three years old are familiar with the annual MOT test when an expert gives it the once-over to make sure it's safe. The more conscientious of us will also make sure we have regular dental check-ups (mine was regular, I went every 15 years whether I needed to or not). But do we do the same with our personal finances? These days the routine hassles of day to day life are so demanding it is easy to overlook some basic financial housekeeping that could easily repay the time taken to do it. So once a year we should conduct a little audit of our affairs to make sure we are on track and in control of our destiny.

Let's start with the big issues first and then work down the scale. Contrary to popular opinion, the most expensive thing you have to buy in your lifetime is not the house but your pension. The average house price in the UK is £106,000, according to the Land Registry, but a decent pension is going to cost at least £200,000 and probably more like £300,000.

Not everyone will have to build up a fund of that size, because some will be in company funded pension schemes. Nevertheless, even members of these schemes should check their statements regularly to see how big the fund is, or what sort of pension they can expect when they retire if it is a defined benefit plan. If it looks like being a bit on the thin side then think about ways to make other arrangements, either through stakeholder pensions or perhaps using ISAs. Either way, the pension centre is a good place to look.

Mortgages are the next biggest financial obligation. Life assurance companies are still sending out letters to endowment mortgage holders warning that there will be a shortfall. If you are in that situation, or think you are, call your endowment provider and find out exactly where you stand. Any problems that might exist can be better solved earlier rather than later. It might mean taking out an additional repayment mortgage, or just ensuring you have additional funds in things like ISAs to make up the difference. Even if you haven't got that worry the fall in short-term interest rates this year has made mortgages cheaper. Now is a good time to check the market to see if better deals are available, and the mortgage centre can help.

Insurance is vital safety net for homeowners and for those with dependents. Use our Insurance centre to ensure you have enough cover on the house and contents, and that you are buying term life insurance, not life assurance. The latter is basically rather an expensive way of investing and gives less protection for the money spent.

Credit cards are an insidious way of building up debt. Make sure you are getting a good rate and, most importantly of all, ensure the balance is cleared every month. If you aren't, then make some big changes. That money is costing you close to 20% a year in interest. Current accounts, like credit cards, provide little real competition, but banks are offering very competitive rates now, some as much as 4.0%, so it might be worth comparing what's on offer.

What about the investment portfolio? Traditionally people leave ISA purchases to the end of the tax year, but there is no reason why they can't be done at any time. You may even get the shares cheaper. If you still have single company PEPs as well as general PEPs, remember it is possible to bundle them together now, which reduces paperwork, complexity and cost.

Finally, if you haven't made a will, do it now. If you have, make sure you keep it up to date. More details on this can be found here.

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