A guide to managing money

Warning: Late repayment can cause you serious money problems

For help, go to moneyadviceservice.org.uk

Representative Example: Representative 1286.98% APR on a loan of £300.00 with 5 monthly repayments of £101.03 Total amount repayable £505.13 Annual interest rate (fixed) 290%

 

This article is not intended to contain information about, or advertise, products offered by us but is intended to contain information, give opinions or discuss generally available products/services.

Author: Internal Marketing Department

 

 

For many consumers the requirement to manage money is greater than ever. The cost of living continues and as a result our disposable income tends to fall. Monthly credit commitments are not the only consideration for consumers, there is of course also the costs associated with everyday living which must be accounted for. In years gone by the basic living expenses of consumers were much simpler and therefore in theory, allowed a lower level of commitment in general. Of course living costs have always included money for rent and the costs to run a house, such as electricity and water, as well as travel costs, such as fuel or public transport costs. The difference being in the past consumers were not also having to pay out such a large amount monthly for the likes of car finance, loan repayments and credit cards. As the years have passed the way we spend our income as consumers has changed and as a result the modern day consumer is more used to having to repay an increased level of commitments. The key to this change is being able to manage expenditure correctly.

Given that the modern day consumer is likely to be spending more monthly before reaching the point where spare income is available, it is important to be able to manage living costs in an affordable manner. Take for example the cost associated with travel. Many consumers nowadays have to pay for their car through finance. Not only has the quality of cars improved but with that the cost. This means consumers buying a ‘new’ car are likely to find the total cost is vastly past the point of their savings and therefore best paid for on a monthly basis. The key with such commitments is to be realistic and not to make a purchase which will take up too much money on a monthly basis. Take for example a consumer who usually has about £400.00 as spare income each month, after all their bills have been paid. In this instance it would be wise for the consumer not to commit to a monthly finance repayment which is any greater than £200.00. The reason behind this is that it is always important to maintain a level of spare income for future purchases or of course, unexpected bills. By selecting a repayment which is less than half of the normal level of spare income, it is much more likely the instalment will be manageable over a longer period of time.

Another example is the management of existing credit commitments. Many consumers have a number of financial commitments running at any one time as we mentioned above. However sometimes it is clear consumers continue to pay monthly for items which in reality may be better repaid as a lump sum. With any form of borrowing there is interest which is applicable. Unless a consumer is borrowing from a family member or friend, it is likely the bank or credit card provider is charging interest for their service. Therefore it is advisable to reduce the costs associated with such credit as quickly as is affordable to do so. Take borrowing of loans specifically, wherever possible the amounts owing on these commitments should be reduced.

With traditional bank loans for example, you can now make one-off repayments in addition to the committed repayment which will not only reduce the total term of the commitment but also reduce the interest which is payable. If there are small balances left on these commitments and a bonus is received from work or there are savings available, it may be worth considering clearing the balances. By doing so the consumer can free up spare income to be committed to other areas of the budget or placed in a high interest savings account for future use.Ultimately the key to successful money management is the ability to not over spend and when spending does take place it is done in an affordable manner. A clear and accurate record of spending on a monthly basis will help consumers ensure they manage their income effectively and are not left in a position where there is not enough money available to pay essential living costs. It would therefore be recommendable that consumers re-visit and re-evaluate their budget on a regular basis to ensure everything which must be covered is accounted for and also, as we have seen, that any reductions which are possible are made.