Debts & Loans

EACH week The Scotsman will give you a top ten guide to pertinent financial issues. Losing pounds maybe the most popular New Year's resolution, but in the current financial climate the focus for many will be on not losing any – or, hopefully, gaining some. Derek Smith, a director of Melville Hutchison Financial Management in Edinburgh, offers his top tips on giving your finances a new start in 2009.

BUILD A BUDGET

Most of us can state precisely what our monthly income is, but few can accurately state their total outgoings. But this is vital if you're going to take control of your expenses and save money you might be wasting. One way simple way to do this is to record all expenditure for a month. You may be surprised at how much money you "waste". For example, do you really need to spend £50 a month on your daily coffee? Once you have identified potential savings and know how much you want to spend in different areas, set that as your budget and stick to it.

SET OBJECTIVES

What do you want to achieve with your money in the short, medium and long term? Record some objectives over those time frames, then construct a plan with which you can achieve them. Without objectives and a plan, your finances are likely to drift aimlessly.

ATTACK DEBT

Overpaying for debt is the most common way people haemorrhage money. Whether it is credit cards, personal loans or your biggest debt of all – your mortgage – it is worth a review to see if you can shave money off your debt servicing costs and pay those debts off sooner.

REVIEW INSURANCE COVER

There is often scope for saving cash from your personal cover and motor, buildings and contents insurance premiums. If you took life and/or critical illness cover from the lender at the start of your mortgage, then there is a good chance you will now benefit from a lower cost policy from elsewhere. If you gave up smoking more than 12 months ago the savings may be greater still. Do not cancel any cover until new insurance is in place. A good IFA can obtain cost comparisons and arrange appropriate cover for you.

REDUCE OTHER COSTS

Take your most recent bank statement and identify and costs and regular outgoings, such as direct debits, that can be reduced or completely stopped. For example, do you get full value for money from your gym or golf membership? Have you worked this out as a cost per visit/round? It might be cheaper just to pay each time you play golf or visit the gym. Similarly, do you get value for money from the monthly fee you pay your bank for services that you don't require? Few packaged bank accounts offer real value.

USE TAX-FREE ALLOWANCES

Isas, pensions, company share schemes and venture capital trusts allow you to keep your money away from the grasp of the taxman in various ways. However, be careful – you should never invest money for tax reasons alone. Some of these schemes are relatively high risk and you need to ensure that all of your investments fit in with your plan and objectives.

UPDATE YOUR WILL

Any changes in circumstances for yourself or those you intend to leave money to mean that you need to keep your will right up to date. Consult your solicitor and also think about setting up a power of attorney, which comes into play should you become unable to make financial decisions for yourself. Your will can also be a key tool in reducing your potential inheritance tax liability.

REVIEW YOUR INVESTMENTS

Ensure that any investments you have (including pension funds) fit with your current attitude to risk and that they are sufficiently diversified to shelter you as much as possible from market downturns. Are you taking too much risk for the returns you want to achieve? Will your expected returns deliver the objectives you want to achieve? An additional area that is often overlooked is cost – it could well be that you can achieve the same returns at a much lower cost.

CLAIM ALL BENEFITS

These are fewer and farther between, but you should ensure that government giveaways such as child benefits and tax credits are claimed as appropriate. To check if you're receiving everything that is due to you, visit the website www.entitledto.co.uk.

TAKE ADVICE

Getting your finances in shape may appear daunting, but it need not be. Advice is available from a number of sources. Local Citizens Advice Bureaux can help with benefits, debt counselling and other money issues.