Managing Your Cash

Posted: 14th March 2011

Money management is one of those areas that many people prefer not to think about, let alone do anything about, until it is too late.
However, there are simple steps you can take to help to make sure your money goes further and your savings are protected. Here are a few:
1. Make sure you get the best rates of interest you can
Keeping money aside where it is available in case of emergency is sensible, but think through how much you need to keep ‘on call’. The best rates of interest normally involve putting funds into an account where there is a notice period.
Do not assume that because the account you put your savings into a few years ago offered a competitive interest rate then, that it still does now. Savings institutions often change the interest rates they offer on accounts and you do need to check regularly to make sure your account is still offering a good rate of interest.
2. Taxable or tax-free?
Check to see if you can get a rate of interest in a tax-free account (such as an ISA) that is the same as or better than you are getting in your existing account.
3. Current accounts – watch the charges
Some current accounts offer extra benefits (such as travel insurance or AA membership) provided you maintain a minimum balance, but do your sums. The interest you lose by not having the money on deposit may make such an offer unattractive – as can the charges levied if you fail to keep the required minimum balance. Do not exceed agreed overdraft limits – the charges for so doing are often astronomical.
4. Don’t be both a borrower and a lender
Normally, it is difficult to get an interest rate on money saved equivalent to the rate that you must pay on money borrowed so, in principle, it is sensible to use spare cash to repay borrowings. But before you do, make sure you have checked the repayment terms applicable – many loans have punitive repayment penalties attached to them, which may make early repayment an expensive exercise.
5. Manage your credit cards
Even the Chairman of a major bank has said that credit card interest rates are so high that he won’t borrow using them. Unless you are taking advantage of an interest-free period, try to repay your credit card bills in full every month, if possible. Paying part of the balance does not normally prevent interest being charged on the whole of the sum outstanding. If you go on holiday and expect a credit card bill to come in and the payment date to pass before you return, consider paying in a sufficient amount before you go to leave your account in credit. Alternatively, telephone the credit card company and try to persuade them to agree that there will not be a charge for late payment – and retain a note of the time and date of the call and the person with whom you spoke!
6. Borrowings
In general, borrowing a substantial amount for day to day items, such as clothing, is a step towards financial difficulties. Make a budget and try to live within it, putting sums aside so you do not run the risk of financial problems if circumstances prevent you from keeping up loan repayments. If necessary, consider consolidating debts into a single, lower-cost loan, but be very careful and only do so after taking advice: many such consolidation agreements are far less attractive in reality than they are made to look in the advertisements.