So you think you’re skint? You’re not alone. Debt is a big deal for a lot of people. Getting out of debt can seem like a mountain to climb, and it can be hard when you want to start to saving for the future but have got credit card bills and loan payments to maintain.
However, unless you are on the breadline, there is always a way to loosen up a bit of spare cash, so here are five ways to generate a bit of extra money. See which apply to you, then read on to see how to turn that surplus income into long-term savings and investments.
1. Cut your energy bills: gas and electricity companies have been quietly raising their tariffs but there are still good deals if you are prepared to switch online, opt for duel fuel and direct debit discounts with switching services like http://www.switchwithwhich.com The average household could save £285 a year, or just under £24 a month.
2. Hunt down your old accounts: have you got bits of money scattered around building society accounts that your parents opened for you when you were a nipper? Track them down at the Building Societies Association if you can’t find your old passbook.
3. Reduce your shopping bill: I like the suggestion of Martin Lewis from MoneySavingExpert who recommends you buy a cheaper supermarket brand when you shop, and see if you can taste any difference. Some of the cheaper products actually have fewer additives too, if you care about that sort of thing.
4. Remortgage: It’s trickier in this “tough love” environment from the banks, but a friend of mine told me yesterday she had saved £500 a month switching to a different loan. Who doesn’t want a £500 a month tax-free income boost?
5. Ditch the takeaways. Just for a month, try to cook in a couple more nights instead and save £20 each time. It’s better for your waistline too.
Now that you’ve hopefully identified £20 a month savings, what should you do with it?
Most people would advise you to use it to pay off debt, and they would be right. However, I am not here to dispense conventional wisdom.
I know all the arguments about why you should pay off debt before you start to save:
1.The cost of servicing debt is almost always more expensive than the rates you would get on an instant access savings account.
2. As I have argued previously, compound interest roulette is a very dangerous game to play.
Nevertheless, saving and investing are as much about psychology as they are about cold cash, and I believe that we all need a bit of carrot as well as stick when it comes to motivation. By all means pay off your credit card bills with the spare money if it makes you feel good.
However, we humans are complex creatures, and as the researcher BF Skinner discovered, positive reinforcement is a more effective method of changing behaviour for the long-term (if you are a parent you’ll know what I mean here).
So if you want to get into the savings habit it is, in my opinion, good to give yourself both a long-term goal and a short-term reward. Start to pay off your debt with the money you have freed up and, at the same time, open a savings account paying the best rate you can find on the money advice website MoneyFacts.
Deposit around 25% of your new money and make this your account to spend on short-term rewards. This is what money counsellor Becky Wright calls the “treats account” (or “pamper account” if you’re female)
Then put the remainder, after paying off your debt, into a share-based savings account (or cash Individual Savings Account if you are new to investing and not yet ready to venture into the stockmarket).
There you go, sorted. I believe that once you are receiving positive feedback from your bank accounts in terms of accumulated interest and capital growth rather than receiving just painful credit card bills every month, you’ll be motivated to continuing saving.
By creating a savings habit, you’ll be keen to continue to save, and hopefully, be more motivated to pay off your debt as well. It’s all about tricking that pesky mind of yours to do stuff that’s good for it, for a change.