Cut monthly expense to balance the books

Jul 11 2008 By Jeremy Gates

Families need to reset household budgets to boost spending power

As turmoil at major British firms like Marks & Spencer, HBOS, Barclays and Taylor Wimpey has shown with alarming frequency, boardroom bosses on vast salaries were no better prepared for the slowdown in the British economy than families gamely trying to balance household budgets.

It's possible that both are hit by the same thing - bricks and mortar falling in value after a decade in which we assumed house prices only ever went in one direction.

But while big companies go cap-in-hand toCity backers or sovereign funds in oil-rich states to restore their finances, piecing household budgets back together again is a more mundane task.

With more than a million people coming off fixed-rate mortgages this year and the cost of borrowing soaring, many families have to act fast to ensure they have enough to fill the petrol tank and pay energy bills set for another surge this winter.

Andrew Hagger, from financial data specialist Moneynet.co.uk, said: "Many consumers don't use a basic monthly budget to manage their finances, and those who do probably see it as an annual task.

"With incomes ravaged by increasing fuel, food, energy and borrowing costs, it's time to take a long, hard look at our financial situation to see how we can get through the rest of 2008 in the most cost-effective way."

Here's his checklist to boost your spending power:

If mortgage repayments are a problem, see if your lender allows a temporary switch to interest-only terms. Anyone with a £140,000 mortgage at 6 per cent who does this for three months frees up £200 a month; on a £220,000 loan, the saving is £320 per month.

Go food shopping once a week and plan your meals in advance. Only buy what you need, and save money by avoiding regular trips to the corner shop.

Beforemaking any big purchases, check online price comparison sites like www.pricerunner.co.uk or www.kelkoo.co.uk to be sure you are paying the going rate.

Try to cut interest charges on credit card borrowing; anybody paying 16 per cent plus, not uncommon in today's market, should consider switching to a balance transfer for life card.

Buy petrol and food on a credit card with a cashback - the American Express platinum moneyback credit card pays 5 per cent cashback for the first three months (maximum £200). If food and petrol cost £500 per month, you could recoup £25 per month for three months.

Work out annual costs for car tax, car service & MOT and Christmas and birthday expenses. Divide it by 12 and pay this amount into a savings account each month.

This avoids having to pay a large bill from one month's wages, and earns a bit of interest in the meantime.

Personal loans are getting pricier, with one of the cheaper providers, Yourpersonalloan.co.uk, funded by Co-op Bank, lifting its rate from 6.9 per cent to 7.3 per cent.

But be sure to arrange payment protection insurance (PPI) on your loan more cheaply through an independent broker, like British Insurance or Paymentcare, than through the lender, which is likely to charge more.

If you haven't reviewed your gas and electricity supplier for a few years, check to see if any dual fuel or online tariffs available would be cheaper than standard offers.

Don't leave too much money in a savings account earning minimal levels of interest.

Finally, make the most of a sunny weekend - take unwanted CDs, DVDs and children's clothes to a car boot sale.

Three hours of hard work and willingness to make an early start to reserve a good pitch, can earn £100 cash, tax-free.