Over the next year 1.5 million homeowners are expected to face sharp increases in their monthly mortgage payments when their fixed rate deal comes to an end, with prices rising by approximately £1,800 a year on average[1].
To help with this, WEALTH at work has outlined some top tips below to help people cut costs and manage their finances.
1. Create a budget – The first step to cutting costs is to create a budget. People should work out what exactly their income is each month and then check their bank statements to clarify what outgoings they have. Outgoings can then be divided into fixed costs which have to be paid such as a mortgage, council tax, energy and water, and then those which may be able to cut back on such as supermarket shopping, monthly contracts for TV, subscriptions and other spending. Some banks have apps which enable this to be done automatically, this will highlight where money is going and where savings could be made.
2. Track finances – After creating a budget it is important to keep track of spending. Ditching takeaways, taking lunch to work and learning to budget can make a huge difference. For example, the average household in the UK spends £1,220[2] on eating food out (e.g. takeaways and restaurants) each year. There are many free budgeting apps available which will help to track spending on groceries, eating out, entertainment etc.
3. Shop wisely – Plan shopping in advance as it will allow time to search for the best deals and reduce expenditure on non-essential items. Also, by switching brands it might be possible to significantly reduce the price of the regular shop. Someone who usually spends £60 a week, could save £20 by changing supermarkets, a saving of £1040[3] a year, and more for a couple or family. When it comes to big purchases, such as if a washing machine breaks, discount vouchers are often available through voucher and discount websites and many workplaces offer employee discount schemes (see below). When shopping for a particular product, Idealo finds the best price online for a particular product and CamelCamelCamel allows you to track the price of Amazon products. Consider installing browser extensions like Honey that search for discount codes during online check-out.
4. Save on household bills – It is possible to make significant savings on a range of household bills from car and home insurance to phone, broadband, TV and mobile contracts. Price comparison websites can help to make it easy to compare the different deals available. Changing to a SIM only deal on your mobile once your out of contract could save £321 a year. Plus, changing broadband providers could save £179 a year[4].
5. Avoid auto-renewals – Many insurance policies automatically renew each year so many people may be paying more than they need to if they don’t shop around. It’s a good idea to find out when any contracts are due to end and put it in the diary a month earlier so that there is plenty of time to shop around. For example, using a price comparison site could save up to £550[5] on car insurance, so £1,100 for a two-car household
6. Manage debt – It’s important to understand the difference between good debt and bad debt. For example, a mortgage is a form of good debt which should be reviewed occasionally to ensure you have a good deal. However, at the opposite end of the spectrum, debt with high interest payments such as payday loans and credit cards can get out of control if they are not repaid quickly. For example, a debt of £3,000 with a rate of 18% APR could take 10 years and 10 months to pay off if paying £50 a month, with a total interest paid of £3,495. If that monthly payment was increased to £100 a month, the debt would be paid off in three years and four months and interest paid would be only £908[6]. For those struggling with debt, a good option could be to consolidate any debts into a 0% or low interest balance transfer card, as more money will go towards paying the debt off and enable it to be cleared over a shorter time. Those who are struggling to make a payment should speak to their provider before they miss a payment, as help may be available.
7. Beware of energy costs – Make sure you do all you can to be energy efficient. Small changes such as turning off lights when they aren’t needed, washing clothes at 30 degrees instead of higher temperatures, making sure the dishwasher is only used when full, and cutting down on the number of times the kettle is boiled can add up to really make a difference to energy bills. Just switching all appliances off standby mode can save £45 a year[7].
8. Maximise workplace benefits – Many employers offer discount schemes with major retailers on groceries, dining and electrical goods etc where lots of savings can be made. Not only this, financial education and guidance is provided in many workplaces to help people with a full range of money matters.
Jonathan Watts Lay, Director, WEALTH at work, a leading financial wellbeing and retirement specialist, comments; “Many people may be worried about when their fixed term mortgage rate ends, and their monthly repayments increase. This can be a stressful time, especially for those who may already be worried about their finances. However, there are steps people can take to effectively manage their finances. Creating a detailed budget, cutting back on unnecessary spending, and shopping around are small changes that can make a big difference.”
He adds; “Overpaying on a mortgage before it’s renewed at a higher rate could be a good idea. This is especially true for those who are going to struggle to pay a new higher monthly rate, as they may be able to secure a better deal by paying more off in advance. People should also be aware that when overpaying on a mortgage, this money could always be accessed again when they come to negotiate their mortgage deal.”
Watts-Lay comments; “Those who may be struggling to pay their mortgage should contact their lender as soon as possible as they may be able to offer ways to help. Citizens Advice can also offer impartial guidance https://www.citizensadvice.org.uk/. Many employers also offer financial education and guidance services in the workplace to help their staff with financial difficulties they may be facing, as well as ways to better manage their finances now and for the future.”