Money Management: From spender to investor
So much of our money goes on what is called ‘disaggregated spending’, lots of small purchases that on their own, don’t add up to much, but together, take up quite a chunk of income.
If invested, these barely noticeable savings could add up to thousands of pounds in additional funds, without a significant compromise in lifestyle.
Invest your savings
It’s unrealistic to expect yourself to cut all unnecessary spending – you have to live and buy the odd birthday present, but depending how much you currently spend, through shopping around and better budgeting, you might even manage to shave £200 to £300 of your typical monthly outgoings.
That sounds like a lot to shave off but below you’ll find some suggestions on how you could do it, ranging from the reasonable sounding to the slightly more extreme.
Over a year, this £2,400 to £3,600 invested could generate up to £180 in extra returns, assuming an average return of 5 per cent annually on your portfolio.
Switch to save
The top things you can do easily to save money all involve switching current deals, which is only an option if you are out of any deal term where there are penalties for early switching. Even if you switch quite regularly, there are always new cheap deals coming out as providers compete hard for your business. If you can, the most lucrative switches you can make are:
- Switch energy provider, if you haven’t already, to save as much as £230 a year (but let’s say £150 would be a reasonable expectation). There are a number of challengers to the Big Six that offer much cheaper energy. So if you are one of the 5 million or so households that still pay British Gas, EDF, E.ON, npower, Scottish Power or SSE, visit the energy pages on uswitch.com or moneysavingexpert.com.
- If you don’t make many mobile calls, then switching to a pay-as-you-go provider such as giff gaff can bring your bills down significantly if you choose a sim-only deal. You have to pay upfront for the phone, but your usage could be as little as £5 a month.
If you use your phone a lot – especially data – then switching to a contract with unlimited data can work out much cheaper than paying for data on demand when you run out on your current contract. Do this, and expect to save around £15 a month.
- Move your mortgage to a cheaper deal. For most of us, a mortgage or rent is still the biggest outgoing. Aside from moving to a cheaper/ smaller house, the only way of cutting the cost is waiting until your mortgage deal term comes to an end and then switching to the cheapest possible deal you can find.
The best deals on the market for loan-to-values of less than 50% are priced at around 1.3 per cent. You can get longer-term fixes for peace of mind (given interest rates are expected to rise) for around 2 per cent. If you are currently on a rate of more than 3 per cent and have about 15 years left on your loan, but think you might be eligible for a cheaper deal, your monthly saving could be around £100 a month if you switch.
- Can you save money on cheaper life, health or income protection insurance? If you have been paying the same monthly premiums for a while, it’s a good idea to check in and see if there are savings you can make on new policies. A classic example would be if you stopped smoking more than 12 months ago – life, income protection and health insurance could all be much cheaper now.
- Cancel unnecessary subscriptions. Get the FT delivered every day? Maybe you could switch to just the online version instead. How about Netflix, Sky Sports or Now TV? If you aren’t making regular use of any of these subscription-only services, switch to the free TV services instead. You could save around £15 a month this way.
Other easy ways to save:
- Besides housing and energy, food and fuel are our biggest outgoings. If you are already frugal, it might be harder to save a lot here, but if you think you could forego wine and possibly cut back on the odd take away or two, these are two common expenditures that, even partially omitted, can save you £15 – £30 a month.
- It’s hard to save on fuel if you depend on your car for most journeys, but if you are close to a bus route, download the timetable and check out the fares. Petrol is becoming more expensive, so even £4 a day on bus fares can be cheaper than using your car. Train tickets booked in advance for long journeys may be cheaper than driving, especially if you have a travel card, but generally, train travel is still unfortunately more expensive.
More extreme ways to save:
- Unless you are lucky enough to have paid off most of your mortgage, housing represents a big monthly cost, either in the form of rent or a big mortgage. Is it possible for you to move somewhere smaller? Depending on the size of your new loan or rent, this is one way to make monthly savings worth hundreds of pounds.
- Take on extra work. If you can fit some additional part-time work around existing commitments, this can be a good way to top up the amount you invest by hundreds of pounds a month. But don’t over-commit time-wise or make yourself stressed in the process.
It would also be a good idea to set up a direct debit to your investment account for this amount, or add it to an existing direct debit, once you have made your cuts and feel confident that you have freed up the cash. There is less temptation to spend it if that money is moved out of your current account as quickly as possible, and money invested is likely to earn you more than money left in your current account.
Some of the best websites for switching and saving: