The Money Well » Budgeting

Buy One Get One Free – Next Week

Sid — Tue, 02 Feb 2010 13:43:32 +0000

Tesco have been trialing a system that changes the accepted way of operating a buy-one-get-one-free offer (BOGOF).

We all enjoy getting something for nothing and for those of us who need to count the pennies an offer where you can buy one item and get another free is very appealing, not least because it can help families make their household budget go further.

One of the problems with this type of special offer has been that by the time you get around to using your free item it may be past its sell by date. So, in a response to this problem Tesco have been running a trial which changes the usual way these deals operate. Instead of having to take both products at the same time you will be given a voucher that entitles you to get your free item the next week when you visit the store.

The trial was to run for two weeks in selected stores and customers choosing pineapple, melon, salad and lettuce offers are able to claim their free product the following week.

Tesco say they will await the results of the trial to see what customer feedback they get but I would expect to see that customers would like this a lot. It would maintain customer loyalty for the individual store since you are more likely to return to the store the following week to get your free product rather than visit the rival stores. Another big benefit of such a scheme is that far less foods will be thrown away unused because it has gone over the sell-by date. So, everybody wins.

It will be interesting to see what develops but it sounds like a great scheme and I would hope this will be rolled out nationally very soon.

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Paying A Mortgage With A Credit Card

Sid — Tue, 12 Jan 2010 14:10:17 +0000

Paying Mortgage With Credit Card

A report was published yesterday by Shelter, the housing and homeless charity, that should worry a lot of people. The report was based on a survey of householders and carried out on their behalf by Yougov.com. The results suggest that a large proportion of the population are using, or have used, their credit cards to help them pay their mortgage or rent at sometime within the last twelve months.

Something like one in sixteen households have apparently used a credit card to help them pay their mortgage or rent and if this is the case, it suggests that things are not quite as rosy in the economy as some would like to suggest.

This comes at a time of historically low interest rates and, we are told, many people are taking advantage of the situation to pay down their credit and debt. It should also be pointed out that credit card interest rates are at a historic high when compared to the bank rate. Overall personal debt levels are apparently reducing and many people find themselves paying hundreds of pounds less each month on their mortgages than they were two years ago. This has enabled them to take the prudent step of reducing other debts using the extra money they have available each month.

The biggest problem would seem to be with the many struggling working families who may have lower incomes following redundancy as a result of the recession though it is not entirely restricted to those on lower incomes.

It is all too easy to imagine a scenario where using your credit card to pay your mortgage appears, at first sight, a sensible move. If you had been recently made redundant and had trouble paying the mortgage but you felt confident you would soon get a job, the logic of paying this months mortgage payment with a credit card may seem reasonable but it is a high risk strategy. The serious problems would develop later if you had not been able to find a job or increase your income.

Credit cards are very useful financial tools to use for short term credit but, and it is a big but, they are very bad to use for long term credit and if you cannot be sure you will have the money to repay the debt soon, the debt will just grow and grow.

It is not too hard to build up credit card debts where the monthly repayments are greater than your mortgage or rent if you spend regularly on your credit card while paying the minimum repayments each month.. This may be surprising to many but it can happen all too easily if you have a spending frame of mind and available credit. This is after all what we have been encouraged to do for years by every advertiser and credit card company.

Given a good credit rating and a lot of credit cards you may feel that using the credit cards to fund the mortgage repayments will get you over a temporary financial problem and that is possible if you are confident your financial circumstances will change for the better very soon. The result of doing this is that you are paying two lots of interest on the original debt and digging yourself an even bigger financial hole to get out of later.

There are warning signs when you are using your credit cards a lot.

If you find yourself using one credit card to make payments on another you should start to worry.
If you are paying less than the minimum payment on a different card each month to lessen the default problems, you should worry.
If the overall balance on your credit cards is increasing month after month, you should worry.
If you are paying your mortgage with a credit card you should definitely be worried.

Unless you have some cunning plan and are very financially astute as this is basically gambling that things will get better soon. If you find yourself in these types of financial difficulties you should discus your financial situation with one of the debt support organisations who will be happy to offer advice on the best ways of dealing with the problems.

They may be able to suggest alternative approaches to managing your financial difficulties that are less expensive and are more likely to enable you to stay in your home. Almost certainly credit cards are not the answer to paying your mortgage.

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Managing Your Finances And Preparing For The Worst

Sid — Fri, 23 Oct 2009 14:22:05 +0000

We are frequently told that banks and other financial companies try to help their customers avoid financial problems and we are also told they charge customers on the basis of how the company views the financial risk that the customer presents. The logic of that seems clear but it puzzles me that the banks seem so eager to push their customers into a far riskier financial situation as soon as they have any financial difficulty.

It should be obvious to any normal person that if someone has had difficulty in any one month they need even more money the following month to get back on track. Most people have a regular and fairly stable income and most of us would have regular expenses that we balance with our income.

The majority of people do everything they can to avoid these debt problems but the reaction of banks to this difficult situation for their customer is invariably to reduce their available cash by imposing charges which are then taken from the account without any opportunity for the account holder to manage the situation and avoid further financial difficulties.

The situation is then that, invariably, the customer has even less money available the following month to cover their expenses, to pay bills and make a payment to catch up for the previous missed payment. It is hard to see how the banks could see this as helping their customer overcome their difficulties.

This slippery slope is one many of us will have experienced with the result that as each month goes by more and more charges are applied and it gets ever harder to balance the budget and get the account back in credit.

With every additional charge it becomes more and more difficult and it can feel like you will never get straight again.You pump whatever money you can find into the account to get straight but charges just swallow it all up and still you owe more. It doesn’t take too many months like this to find yourself in a financial hole that feels like you can never climb out of.

We all live a fine line between comfortably affording our lifestyle and financial disaster. For many people, it wouldn’t take much to push them over the edge and the Bank’s way of ‘helping’ their customers who hit a difficult patch seems to be just about the worst possible help you could have. The phrase that comes to mind is, ‘”With friends like that, who needs enemies”.

Everything may seem rosy today but none of us know what is around the corner. Financial circumstances can change and it doesn’t always have to be a big change to have a large impact on your financial situation. If you do not have significant savings to give you a comfort zone and your expenses are broadly in-line with your income, you could be at risk of financial problems if anything changes.

Many of us buy a lottery ticket with the hope that maybe this time we might be lucky and gain from a big win. The reality is that it is far more likely that something will happen which leads you towards financial disaster than it is that you will be one of the big winners on the lottery.

We need to prepare for the worst and by doing so we may avoid it ever happening. Take some simple steps to get your monthly budget in reasonable shape.

Build up a readily available cash reserve for any financial emergencies.
Avoid using credit cards for long term debt.
Make sure there is always enough money in your account to cover any payments and if there is not then at least cancel the direct debits which will lead to charges if the payment fails to clear. Find another way to make the payments.
Carry out an analysis of your financial situation which looks at income and expenditure to see just how well off you really are.
Prepare a budget that covers all your outgoings and expenses and has at least a little surplus in reserve. If your budget doesn’t balance do what you can to reduce your spending and get your budget back under control.

Remember that you need the money far more than your bank does but if you lose control they will take advantage of your situation and rip you off left, right and centre. They do not care about you. All you are is a cash cow to them and they will make your financial situation far worse. They will increase your financial riskiness and you will find your interest rates on debts rising as the financial industry does everything they can to, apparently, try to bankrupt you.

Don’t let it happen to you.

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The Financial Cost of Habitual Behaviour

Sid — Thu, 20 Aug 2009 10:18:32 +0000

We all buy things all the time and sometimes they are significant purchases that we notice but often we have habits and habitual behaviour that makes it all so common we hardly even notice. I have been looking at some figures for regular purchases and it starts to get scary when you look at them over long periods of time.

The habit might be a daily one like smoking which will cost perhaps £5 per day. Maybe that doesn’t sound so much. What if you look at it as £35 each week? Starting to notice it?£150 per month is enough to do something worthwhile with isn’t it? If you look at a whole year it comes out at £1825.00 which would pay for a decent holiday and over 40 years it comes to £73,000

Daily Cost = £5.00
Weekly Cost = £35.00
Monthly Cost=£150.00
Yearly Cos t= £1825.00
40 Year Cost=£73,000.00

It makes you think doesn’t it and I am not picking on smokers here. It’s all about regular habitual purchases and the same cost might apply to having a coffee and a cake or a couple of pints down the pub.

It applies to buying newspapers, magazines, bags of crisps, gym memberships and anything else you do on a regular basis.

How long do you have to work for the annual cost of any of these things. A regular smoker or a drinker might be working one hour in every day to pay for the habit. If you enjoy it and feel it is worth the cost then fine. I am not picking on any particular habit here but understanding how regular payments mount up and seeing the numbers should make you look at them and question if that is really how you want to spend your money.

Quit a daily habit and it might pay for your holiday or allow you to have another holiday. It might enable you to make an extra payment on your mortgage each year and cut the overall cost and length of your mortgage term quite significantly. We tend to focus on money on a day by day basis but looking at costs over the long term can give a broader perspective that might make you question some of those daily incidental expenses.

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Avoid The Penalty Of Bank Charges On Direct Debits

Sid — Fri, 03 Jul 2009 09:41:09 +0000

While we all await the result of the appeal by the banks to the House Of Lords over the bank penalty charges case charges continue to be applied. For many people these charges make a huge hole in their financial budgeting and avoiding the additional costs of bank charges can be crucial.

Direct debit payments make life much easier and simplify the task of regular bill paying but they have a sting in their tail if you are running close to your agreed overdraft limit. An attempted payment of a direct debit can leave you out of pocket and still have the debt to pay. An example would be that we have a credit card that requires a direct debit payment of £50.00.

Unfortunately, for whatever reason, there is not £50 available to be withdrawn from your bank account. The direct debit is requested. The bank makes the payment but then discovers that the money wasn’t there and reverses the payment. The net result is that the payment has not been made but the bank will apply a penalty charge of £35.00 for attempted withdrawal when funds were not available.

The credit card company will charge you £12.00 for failing to make a payment and if you were near your credit limit on the card they might charge you a further £12 for going over your credit limit as a result of the payment not being made. So, for a bill that has not been paid you have been charged £35+£12+£12=£59.00 for nothing. You still have to make the payment of £50 to the credit card on top of all these charges and the final cost of paying £50 off your credit card will be £109.00.

There are a couple of lessons to be learned here. One is always keep enough in your current account to cover all your expected direct debits but the other lesson is that if you are sure a direct debit is going to fail then cancel it before it goes through. Make other arrangements to pay the debt but avoid the direct debit failing because that just costs you money for no gain whatsoever, except by your bank and the credit card company. I think it is a reasonable assumption that you need the money more than they do.

The final lesson is simple. The credit card company is not your friend. They are interested in you ONLY for the profit they can make from you. Work towards reducing your debts so you are in control of your life and your money, not them.

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