Make sorting out your finances your New Year’s resolution

Christmas is usually associated with spending rather than saving, but now is the time to get your finances in check. And what better way to do that than by making managing your finances a priority when it comes to setting your New Year?s resolutions. Follow these three golden rules if you want to turn over a new leaf in 2008.

Rule number one: Always Shop Around
Most people will have at least one of the following: a current account, a mortgage and a credit card. Now is the time to make sure you have the best deal available for your circumstances, so put interest rates at the top of your shopping list.

• Make your current account work harder?Just because your money is in your current account doesn’t mean it can’t be earning you interest. Some current accounts pay as much as 6% on balances up to ?2,500, show shop around. Visit www.fool.co.uk and compare interest rates on current accounts to find the best deals.
• Cut the cost of your festive spending ?High street bank Halifax research showed that the average Christmas shopper intends to spend ?383 on presents. If this is done on an expensive store card or a credit card with a high APR (in some cases store cards have a rate in excess of 25.9%) you could end up paying much more than you bargained for, so make sure you do your sums before you go spending crazy.

Rule number two: Save, save, save

• Set up a standing order…One easy way of getting into the saving habit is to set up a standing order so that funds can go straight from your current account to your savings account as soon as you get paid each month.
• Get the kids involved…It’s also a good idea to encourage children to save for the future ? shop around for the best interest rates on children?s bank accounts. And don?t forget the Child Trust Fund, which is a long-term savings product that matures when the child is 18. Children born on or after 1stSeptember 2002 receive a Government voucher of ?250 to open an account, and family members can contribute up to ?1,200 each year, which could build into a very useful sum when your child goes off to university or needs a deposit for their first home.
• Use your full ISA allowance in 2008?Setting up an ISA helps to make the most of your savings and means you avoid paying tax on any interest earned. You can currently save a maximum of ?7,000 each tax year, either by investing up to ?7,000 in a maxi stock and shares ISA or a combination of up to ?4,000 in a mini stocks and shares ISA and ?3,000 in a mini cash ISA. From 6th April 2008, the distinction between maxi and mini ISA?s will be removed and everyone will have an annual allowance of ?7,200 ? of which up to ?3,600 can be saved in a cash ISA.

Rule number three: Move closer to mortgage free day

• Overpay on your mortgage?Making small overpayments on your mortgage each month will reap huge rewards over the longer-term. For example, on a ?100,000 mortgage taken out on a typical variable rate of 7.5%, overpaying by ?50 per month will reduce the term of your mortgage by four years and save you over ?22,000. Overpaying by ?100 per month on the same mortgage will reduce your term by almost seven years and reduce the amount repaid by more than ?35,000. (see table)

The benefits of overpaying on your mortgage

Happy New Year!