Festive Finance Tips

Now I'm a sucker for seasonal traditions and annoying Christmas songs but when the time comes to take down the tree and recycle the Christmas cards, my New Year's hangover is always heightened by the sheer dread of looking at the damage done to my bank account during the giddy days of December.

To help people start the year on a more positive note, here are a few festive finance tips to keep the seasonal spending under control.

1. Set a budget for different spending areas before you start your Christmas shopping. Allocate a limit to the amount you spend on each person on your list and be strict with yourself, think about how many of last year's Christmas presents become this year's recycling.
   
2. Add up how much you have allocated to each person and to the food shopping and make sure it's a manageable amount. Be honest with yourself, denial leads to more debt!
   
3. When it comes to the dreaded supermarket shop, try and buy as much as you can in the weeks leading up to Christmas (providing you have a good hiding place from the hungry hoards). By breaking the bill up over several weeks, there will be less of a shock when you do the 'big shop'.
   
4. When you get your December salary, transfer part of it to a seperate account in anticipation for the long month of January. Many people get an early salary in December and then nothing until the end of January, with the joy of overstretched credit card bills to pay off along the way.
   
5. Take care when buying gifts from outside of Europe. While the prices quoted on the internet may seem remarkably cheap and the weakness of the US Dollar very favourable, there is the unmentioned matter of customs and excise duty and import VAT to be considered. For specific details on duty charges, check out the rules on HMR&Cs website.
   
6. When buying gifts, make sure you keep the receipts in case there is a problem with the goods and they need to be returned. Check that goods are in working order as soon as possible as there may be a restricted return period.

On that note, I need to do some wrapping, so I'd like to take this opportunity to wish all our bloggers a very HAPPY CHRISTMAS and a prosperous New Year.........

Will You or Won't You?

Where there's a will there's a way

Moving on from James' obsession with murder to the more cheery topic of wills...... As seen in November's Tip of The Month, there are many valid reasons why you should set up a will. While this may seem a little depressing and instill the fear of excessive solicitor fees, I imagine these things are far easier to communicate to a solicitor in our lifetime than to a psychic after death.

I can understand the temptation to ignore the matter but it seems crazy not to take the time to write down how you would like your worldly goods, that you've worked so hard to obtain, to be distributed.

Having said that, while there are formal requirements when it comes to writing a will, if your circumstances are straightforward, there is no actual need to use a solicitor. However, as the rules are quite specific and it is so crucial that the document has the effect you intend, it might be a good idea.

Choosing a Solicitor

We would recommend that you contact a few local solicitors to compare prices, bearing in mind that the cost will reflect the complexity of your circumstances. Realistically tho, you'll be looking at around £50 to £300 (EUR75 to EUR450).

It might also be worth checking your insurance policies/trade union rights as you may be entitled to free legal advice in relation to writing your will.

If you are determined to avoid the use of a professional, there are some great online software based options. Two great options are online legal website 'Lawpack' that offers both online will writing and software downloads from £14.49, and 'Desktop Lawyer' who provide a variety of wills and other documents.

Prior to meeting with your solicitor, consider the following points and list the key facts relating to your circumstances to reduce the time required on your will & therefore the amount they can charge!

Content

Things you will need to consider when drawing up your will include the following:

1. How much money and what property and possessions do you own? For example, property, savings, occupational and personal pensions, insurance policies, bank and building society accounts, shares.


2. Who you want to benefit from your will? You should make a list of all the people to whom you wish to leave money or possessions. These people are known as beneficiaries. You also needs to consider whether you wish to leave any money to charity.


3. Who should look after any children under 18?


4. Who is going to sort out the estate and carry out your wishes as set out in the will? These people are known as the executors.

NB. An executor takes on a huge amount of work and responsibility in the form of dealing with all the paperwork and paying all outstanding debts, taxes, funeral and admin costs out of the assets you leave behind. They will also have to execute any financial transfers/gifts that you stipulate in your will. Therefore, it might be courteous to ask the person you have in mind or else appoint a professional!

Requirements for a valid will

To ensure a will is a valid legal document, it must be:-

• In writing
• Written by some who is 18 or over
• Made voluntarily and without pressure from any other person
• Made by a person who is of sound mind. This means the person must be fully aware of the nature of the document being written or signed and aware of the property and the identity of the people who may inherit
• Signed by the person making the will in the presence of two witnesses
• Signed by the two witnesses, in the presence of the person making the will, after it has been signed. A witness or the married partner of a witness cannot benefit from a will. If a witness is a beneficiary (or the married partner or civil partner of a beneficiary), the will is still valid but the beneficiary will not be able to inherit under the will.

NB. Although it will be legally valid even if it is not dated, it is advisable to ensure that the will also includes the date on which it is signed.

Storing your will

Once a will has been made, it should be kept in a safe place and other documents should not be attached to it.

There are a number of places where you can keep a will:-

• At home
• With a solicitor
• At a bank
• At the Principal Registry of the Family Division of the High Court, a District Registry or Probate Sub-Registry for safe keeping.

If you wish to deposit a will in this way you should visit the District Registry or Probate Sub-Registry or write to The Probate Department.

Changing a will

If your circumstances change after writing your will (ie marriage/divorce/children), you will need to amend the original document. To do this, you must either make a 'codicil' (supplementary document detailing alterations for simple changes) to the original will or write a new will. If a new will is created it will supercede all previous versions.

We highly recommend that you take action and resolve your will asap. A bit of effort now will save an enormous amount of conflict and stress down the line.

Just a quick update, there is an great new website available for our Irish readers www.wills.ie, very easy to use

Bank accounts - What to look for

With the DIY phenomenon that has swept the nation, stashing cash under the floorboards just isn't an option in this day and age. So thankfully we're incredibly spoilt when it comes to choosing a suitable bank account. Be it simply for safekeeping your hard earned cash or for providing flexible international transfers for your new business, you need to decide the type of account you're looking for. The standard accounts are:

Current account - Standard account for everyday use.

Savings account - Less flexible, higher interest account for money we can afford to put aside.

Student account - Only available to registered students and likely to offer reduced interest charges on overdrafts and other incentives.

Business account - Suitable for regular transactions regardless of the size of your business.

While the specifics will vary depending on the requirement of your account, the standard services would include the following options:

• Interest on balance
• Overdraft facility
• Internet/telephone banking
• Cash card/Debit card/Cheque card/Credit card
• Direct debits & standing orders
• Automatic transfers national & international

So how on earth do we decide?

Some of the key criteria that you should consider are detailed below. You need to check out the terms of available bank accounts and determine which one is best suited to your needs. A great site for comparing accounts is moneysupermarket.com . Check it out, bearing in mind the following:

(i) Bank Interest

Ever changing interest rates can have a huge impact on your bank balance. If you're looking to build up some savings, you want an account that offers the highest rate of interest possible. One of the pay-offs of a high interest savings account however could be flexibility in terms of withdrawals & payments, so consider how you intend to use the account day to day.

If there's a chance you'll need to rely on an overdraft facility, you must check the interest rate you'll be charged as it will always be higher than the rate the bank would ever pay you on your savings.

The rates a bank account will quote are AER for positive bank balances and APR for balances in the red (see definitions below).

(ii) Overdraft facility

An overdraft is a very handy facility and is a cheap option in terms of short-term, low level borrowings. However, it can also become a slippery slope, and it's often very difficult to get back into a positive balance once you become accustomed to spending the bank's money! Take control of the limit set on your account. Set it to a realistic level that you can control, try & treat it as an emergency money pot.

Be very careful not to exceed your limit. Bank charges are particularly harsh on borrowers pushing their luck, in the region of £30 (EUR50) a transaction.

(iii) Bank charges

Charges are often a flat rate amount. You could be subject to charges on withdrawals, electronic payments and breaches of overdraft facilities. Some banks will simply charge a monthly amount as a service fee, so check the details and consider which account will result in minimal fees for you.

(iv) Cash card/Debit card/Cheque card/Credit card

A cash card allows you to draw money from Automated Teller Machines (ATMs or cash machines). Many banks set a daily limit as to how much you can take out, even if your account contains funds.

A debit card allows you to pay for goods at the point of purchase, providing there's money in your current account. Some shops may also provide 'cashback' when making your purchase.

A cheque guarantee card is used to back up any cheque you write - usually up to the value of £50-£100 (EUR 70-EUR 130).

A credit card allows you to pay for things on credit ie. buy now, pay later. You will receive a seperate statement for this facility and need to arrange repayment from your current account regularly as you will pay for the pleasure, as you would if you took out a loan.

(v) Accessibility

Check out how many cash points there are in your area and the availability of customer support services. There's nothing worse than feeling abandoned by your service provider.

(vi) Electronic banking

Internet banking is the way to go if you actively use your account. You can keep a close eye on your balance and the transactions being processed, and arrange for electronic payments including direct debits (regular payments) and standing orders (fixed regular payments).

Most banking is virtual these days and you rarely actually need to carry cash when you can do it all on the Internet or with bank cards.

Warning

Watch out for promotional offers, especially on business bank accounts. They are designed to attract custom and you need to check what the true terms will be after the promotions end.

Definitions

AER - Annual Equivalent Rate

The interest received on a savings account is referred to as the Annual Equivalent Rate (AER). Any interest rate quoted as an AER will only be accurate if you do not withdraw money from your account during the year in question. The reason for this is that the AER illustrates what the interest would be if the interest was paid and compounded (added to the interest from previous payouts). Therefore, any withdrawals that you make from the account can affect the rate you will receive at the end of the year.

Don't forget that if you're a UK taxpayer you will also need to deduct 20% from any interest calculation as the interest you earn is a taxable source of income. Most banks and building societies will quote the interest a gross amount (before tax is taken), and will pay the interest into your account as a net amount (after tax is taken).

APR - Annual Percentage Rate

Any borrowings that you may have will charge you interest, instead of paying you interest. The interest that you are expected to pay is often referred to as the Annual Percentage Rate (APR). The APR is the rate of interest that a lender is required by law to quote, and it represents the true cost of the borrowing. If you are looking to take out any form of borrowing, then you should try and get the lowest APR you can, as this will be the total amount of interest that you are expected to repay over the course of your agreement.

Disposable Income - What's left to our discretion?

The definition of disposable income according to Wikipedia is the total amount of income an individual makes after direct taxes.

Gross income - taxes = Disposable income

Discretionary income therefore is the amount after taxes, and after the cost of the fixed expenses of life (rent/mortgage, food, car payments, insurance, etc.), otherwise known as necessities.

Gross income - taxes - necessities = Discretionary income

In other words, it's income that can be saved or spent on goods and services that we want, as opposed to things that we need.

When applying for a loan or a mortgage, banks often take into consideration the applicant's disposable income in order to assess the loan repayment capacity of the applicant.

What's left to our discretion?

Recent news reports have highlighted that disposable income in the UK is at its lowest level for a decade. It seems that no matter how hard we work, the costs of living continue to rise; which makes one think that too much of our income ends up in the waste disposal and not enough is left to our discretion.

A price comparison website uSwitch claims that in 1997, when Labour came to power, people were left with 34.5% of their gross income once they had paid taxes, national insurance, mortgage or rent. Now they are left with only 32.6%.

The biggest salary swallowers highlighted in the table below relate to 4 key areas that have increased the most over the last decade.

(i) TAXES: Direct taxes linked to our salaries have shot up 81%, which some may argue results from a fair income graded tax system. Far less satisfactory however is the increase in indirect taxes (those that are not linked to our income) and in particular council tax rates which have increased by a whopping 92%.

(ii) HOUSING: The cost of a mortgage has more than tripled in 10 years which affects both home owners and tenants. This problem has been enhanced recently as many home owners are being forced to switch from a fixed rate mortgage to a variable rate, which with the increase in interest rates in recent years could come as quite a shock.

(iii) PHONE & INTERNET: Communication and information have become a huge part of daily life. As a result, related bills have risen 77%.

(iv) PETROL: A necessity for many people, the cost of petrol has risen by 55%.

Is it all doom and gloom?

There's no denying life has become more expensive, but we need to keep it in proportion.

According to the Office for National Statistics data, the RPI index increased by around 17.5 per cent over the ten year period in question.

In actual terms, a comparison between 1997 and 2007 shows that disposable income is as follows:

1997: 35% x £34,796 = £12,002

2007: 33% x £53,895 = £17,530

This means an increase of 46%, which when compared to inflation shows a fairly healthy step up in actual disposable income.

Having said that, the increase in costs will affect a lot of people at a time when there's been a noted increase in the number of households living below 60% of the average household income. Ultimately, each of us needs to assess our personal situation and take steps to manage our outgoings in relation to our income.

Keep an eye on our blog, we're planning to issue advice on personal finances and saving plans in the next few weeks, aimed to help with bill management.