In recent weeks we’ve published a lot of articles on how to beat the credit crunch. Over the next few weeks we’ll publish many more.
We all know the score. After years of boom, we’ve hit a rough patch. Rising interest rates, hence higher mortgage repayments, have coincided with rising energy and food prices plus falling house and share prices. For all except the very rich, everyday living expenses have risen far faster than incomes. We’re all worse off, and most of us need to spend less to keep our budget in balance.
But let’s get it in perspective. This isn’t a 1980s-style meltdown in which a quarter of industry vanishes, nor even a 1990s style recession when unemployment doubled. Most likely, this is a shallow recession which will last for 9 months or so, after which the economy will return to its trend of 2.5% or so annual growth.
We're not doomed
There’s always a bunch of doomsayers out there with plausible horror scenarios, and this time is no different. But with countries with 3 billion people in ongoing booms (China, India, Brazil, Russia), a big setback for the global economy is less plausible now than at any time in the past 50 years. So it’s not time to sell everything and head for the hills. But it is time to get stuck into the household budget and take whatever steps you can to improve your cashflow.
That’s what our ‘Beat the crunch’ series of articles will help you do. We’ve already published a lot, so I’m going to point to you to features you can use now. In a few weeks time, I’ll do another roundup.
The key thing with this kind of money-saving exercise is to take it one step at a time. You can’t hack it all at once. Work your way through the budgeting process methodically, starting with getting the information. It’s surprising how many people scrabble around for savings without methodically going through their bank statements and credit card bills – and not at all surprising that this doesn’t work very well. Once you’ve drawn up a budget, work your way through the essentials, since things like the mortgage and the utility bills are where the biggest savings can be achieved. Then move onto the non-essentials, which includes all your leisure spending.
Some tough decisions
The question you need to ask for the essentials is obvious: could I get the same or very similar service for less money? If you can, switch.
But for non-essentials it’s not quite so simple. In theory you could eliminate all this spending but then you might commit suicide because you’d be so depressed. So the question here is not ‘Could I stop spending this money?’ but: ‘Does this spending really contribute to my sense of happiness or well-being?’ and, if the answer is ‘Yes’, the following question: ‘Are there other ways I could achieve the same sense of happiness or well-being without spending that, or by spending less?’ This isn’t such an easy question to answer, so this section of the money-saving budget is certainly the hardest and may need several revisits.
Be realistic. Quality time with family and friends is the best recipe for human happiness - a lot of other activities are substitutes. Find activities you and your friends enjoy that don’t involve big spending. As examples, I predict that demand for allotments is going to rise sharply, and that demand for big holiday cottages capable of accommodating several families will also soar - these are often excellent holiday value for a big group.
What if you really are in the glums about your money woes? Try not to get trapped in negative moods – there are things you can do to escape.
Play your cards right
Now for some specifics. Almost all of us use credit cards, but we don’t all use them as well as we could. One basic point is that unless you check, you’ll never know if there’s a mistake that’s damaging your credit rating and that could cost you when you apply for any form of credit – so check it out.
If you have outstanding balances on credit cards, plan to pay them off but in the meantime, secure the best 0% deals going. The same applies to your purchases: use a 0%-for-12-months card and save the money in a savings account earning 7%.
If you’re prepared to put a bit of time and effort into this, you can play the card market and make worthwhile savings in the cost of paying off your debt. But before starting to play this game, make sure you understand the way the card companies levy their fees, and also their rules on the way payments are applied to your card, since in both cases you can end up paying through the nose if you make a simple error.
We’ll be publishing more articles on How to Beat the Crunch – on mortgages, house/car/travel insurance, and more – in coming weeks.
