Austerity to spur

14th December 2010

Chris Morling, managing director of money.co.uk s ays: " The expense of Christmas, the long wait for payday and the VAT rise will put a lot of pressure on household budgets.  January is going to feel like a very long month for many people. 

"While it's a shame to see so many people predicting a glum start to the year, it's understandable. "

The first of January is the day of the year when Brits expect to hit their lowest financial ebb.  With the Christmas spending hangover beginning to take hold and many facing a long wait for a January pay cheque, one third (33%) of adults face the first with financial dread, with the 31st of January (25%) and Christmas Day (22%) coming in second and third. 

This year the £1.9 billion Christmas debt hangover will be compounded by the rise in VAT and longer-term money worries. Almost 80% of British adults are concerned about debt, savings and keeping control of their money as we head into the new year.

And 2011 looks sets to be another bleak year for the housing market.  Just 4% of those surveyed by money.co.uk cited ‘moving house' as a resolution for 2011 while a tiny 2% of those they talked to see 2011 as the year in which they expect to buy their first home.

But there is some good news. Apparently more and more of us are adopting a ‘back to basics' approach to our spending.

Over a third (34%) are focused on growing their savings (29%) or saving for retirement (5%). Some 30% are focused on reducing debt, including 7% who are keen to pay down mortgage debts. While 26% are keen to either earn more money (12%) or get in control of the money they have already (14%).

Morling says: "It is positive that so many people seem resolved to take greater control of their money during 2011. I'd urge anyone setting themselves money-related goals to use the New Year long weekend as an opportunity to start as you mean to go on."

With this in mind, money.co.uk has created a series of tips to help Brits stick to their resolutions and achieve their goals:

1. Use the long weekend to review your finances

Dig out all the documents you need to understand your money situation in detail – everything from current and savings accounts to credit cards, loans, mortgage and utility bills.  Work out exactly how much you have saved, or how much you owe, and note down things like interest rates, fees and charges, and any penalties you would have to pay if you decide to change provider. 

2. Give yourself a money makeover

Use the information you have gathered to look for ways to save money and make money in 2011.  Could you find a savings account or ISA with better interest rates?  Could you lower your utility bills by switching?  Which debts are the most expensive in terms of interest rates and actual monthly payments and which could you reduce quickly, either by changing provider or by focusing on paying them off? Money.co.uk has a one hour mini money makeover on its site 

3. Focus your resolutions on the areas in which you can make the most difference

Work out whether adding to your savings or paying off your debts would make the most difference to your household finances.  Work out how much you pay out each year in interest on debts and compare this figure with the amount you make from interest on your savings.  For many people, paying off debts makes the biggest difference simply because interest rates on savings accounts remain very low. 

4. Link your money-related resolutions to life-style related goals 

It is much easier to stick to a financial resolution if you can work towards a tangible reward.  For instance, if your resolution is to grow your savings, decide at the outset what those savings are for – be that a short term reward like a holiday, or a long term benefit like a child's education.

5. Take a step by step approach and don't get sidetracked

Aim for lifestyle-driven financial goals and break them down into a series of interlinked and achievable steps to make sure you keep on track.

Gordon Bowden of Quainton Hills Financial Planning says setting up a regular savings plan is essential. 

"Put aside a regular amount each month to invest for the long term.  Do not spend your monthly income and then see what is left over.  There will never be enough left over.  Instead decide how much you want to save and work out your spending budget from what is left. One day you will be glad you did this."

While Steve Laird from Carrington Wealth Management has one final piece of advice for anyone planning a big ticket purchase.

"Buy before 4 January 2011.  The VAT increase comes in on 4 January but any payments made against it before then will be liable to VAT at the old rate.   So, if you've ordered an expensive item for delivery in January it would be worth paying in full before then.   In practice this means paying before the end of December.  This is particularly useful if you're buying a new car.   If you pay for it in December you can get the old VAT rate but the car can still be registered in 2011 which means it's likely to be worth more when you come to sell it – the best of both worlds!"

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