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How to spring clean your finances

It’s spring and the start of a new tax year, so what better time to have a review of your financial situation.

Money problems often stem from a failure to balance the cash you have coming in against bills and other outgoings. But even if you have your finances under control, it is well worth reviewing what you are spending on the likes of your mortgage and utilities, as well as the returns on any savings or investments to see if you can get better deals.

Check your statements

The best way to start a financial spring clean is by getting a clear picture about what’s happening to your money.

Check your recent current account statements to see what your earnings are being spent on, and to make sure there are no potentially fraudulent transactions that you can’t account for.

Pay close attention to direct debits and standing orders: do you really need to keep up that gym membership or magazine subscription?

Check whether you are being charged for a “premium” current account, which might cost £10 or £15 a month. These offer customers benefits such as commission-free travel money or complimentary travel insurance. But ask yourself whether these perks are really worth more than the £100 or more a year you are effectively paying for them.

Cut your mortgage rate

If you own your home, your mortgage is likely to be one of your biggest outgoings so this should be a priority when it comes to a financial review.

You may be able to cut your monthly repayments by remortgaging to a cheaper deal, but this is only likely to make sense if you’re not currently facing any exit penalties. Such penalties are usually in force during initial fixed-rate periods of typically two or five years, and can run into thousands of pounds.

If you are free to switch and manage to find a cheaper rate from a rival provider, check the fees associated with the new deal – you might have to pay an administration fee as well as a product fee, which could be hundreds of pounds. A mortgage broker can help you choose the most suitable deal.

There are other options when it comes to your mortgage: if you have some spare cash, you could reduce the length of your loan and cut the total amount of interest you are charged by overpaying every month. Check your deal to see if this is possible.

Analyse your credit report

If you are planning to borrow via a mortgage, personal loan or credit card, you’ll need a decent credit score. Now is a good time to check your report and make sure there are no errors on it that could lead to you being turned down by potential lenders.

You can order a copy of your statutory credit report from each of the three major credit-reference agencies, Callcredit, Equifax and Experian for £2.

The agencies also offer ongoing services that give advice on how to improve your score and alert you if there is any fraud suspected in your name – these cost around £15 a month but there is normally an initial one-month free trial available which will also give you access to your report.

Pay less for utilities

Switching gas and electricity provider is very straightforward these days – price-comparison sites let you check which company offers the best deal based on your current consumption levels.

If you’ve recently signed up to a fixed-rate energy tariff, you may face a penalty if you switch provider before the fixed period ends, however.

When you change your energy company, the only difference should be in how much you pay for power and what the service levels are like – so as well as comparing on the basis of price, consider also what other customers are saying about their dealings with potential suppliers.

Think about retirement

No financial review could be complete without some thought going to how you are going to pay for your retirement. If you already have a company or personal pension, check your most recent statement and do your sums to see what level of income it is likely to provide when you stop working.

There are a number of online pension calculators that will help – they can also show you the potential impact of waiting longer before you retire, for example, as well as of making larger monthly contributions.

Also think about whether a pension is the right way of saving for your later life: remember, the money in a pension can only be accessed after you turn 55 under current rules, although recent reforms mean savers have much more flexibility over how they use their funds.

Balance risk and return

If you have money saved or invested, check what returns it is generating. If your bank deposits aren’t earning much interest think about taking on a greater level of risk in order to boost your potential gains.

At the moment, yields on cash are very low – even locking your money up for a year or more in a fixed-rate savings bond is no guarantee of decent returns. Taking on more risk, either through the likes of peer-to-peer lending or investing in the stock market, is likely to be the only way of ensuring your spare cash grows at a decent rate.

Avoid insurance traps

Loyalty to financial companies – in particular insurers – can be a significant waste of money.

Home and motor insurers make most of their profits by raising renewal premiums for existing customers. In many cases, policies are renewed automatically – at a much more expensive rate – unless the customer actively cancels.

Find out when any annual policies you hold are due for renewal and make a note on your calendar to shop around for a cheaper deal a few weeks in advance.