Getting your finances in shape this summer: How to survive the credit crunch

Summer has arrived at last and now's the ideal time to dust off the bike, get down the gym and get into shape. Likewise there's never been a better time to get our finances in trim, a task which is all the more vital in case the credit crunch and cost of living increases begin to bite any harder....

Was it really 8 months ago that the first UK casualty of the credit crunch hit the headlines? Since Septembers news that Northern Rock was in trouble, the state of the financial markets has been in the news on a pretty much daily basis. Its not only the unrelentingly pessimistic view of the pundits being beamed through our TV's that has added to a sense of unease.......with household bills rising and the credit squeeze taking its toll on borrowing costs, many people are feeling that life is a little less cosy than it seemed this time last year.

So with many household budgets now tighter and prospects for contract rates potentially not so rosy as in previous years what can we do to ease current pressures and prepare ourselves for any period of slower growth in the economy?

Household Bills
The first and most simple step is to cut back on your spending. Cut those empty expenses that gnaw away at your financial security and you'll be better placed for a potentially tougher economic climate. Ten pounds lost here and there all adds up!

One quick and easy way to save money is to make sure you have the best deal on your utilities. In common with the FSA, I don't have a lot of time for many comparison websites but for this purpose I have found that they give a fair indication of the best deals available.

When you successfully reduce any bill, the next months direct debit will obviously be that bit lower and the trick is to immediately redirect the saving into a deposit account rather than lose the opportunity. This is money that you didnt have in the previous month and so you shouldnt miss it that much but it will be a real achievement if you can put the funds to work building up financial muscle for any leaner times ahead.

Credit cards debt
Figures show that some 1.29 million people have unsecured debts of more than £20,000.

If you're someone who doesn't clear their credit card balance in full every month, there are still a handful of 0% deals around for you exploit although many now have arrangement fees so it's important to look at the total costs involved. Best to make a concerted effort to try to pay off the debt, before the interest-free period ends, if at all possible and think twice before using your credit card on day to day spending. The average standard rate on purchases has increased from 16.72% to 17.01%.

Are you paying as little as possible for your mortgage?
As borrowing becomes trickier, going to a broker can make good sense and it's no surprise that enquiries to the UKs Independent Financial Advisers are up 50%. Whilst we can't magic great rates out of the air, we can help hunt out the best schemes for your circumstances. It's a really fast-moving market right now, where tracking down the best deal takes time and those good rates that are around are being withdrawn with very little notice. We are happy to help and although our specialist contract based mortgage underwriting has been looked at by various lenders who were considering whether to drop it, thankfully we've been able to convince them that using the contract rate alone still has a place and that Contractors represent a sound credit risk even with a slowdown in the wider economy.

Borrowers with mortgage schemes due to end in the next 4 to 5 months, who have relatively small amounts of equity in their property, could benefit from looking at options now, securing current deals ahead of any further tightening of lending criteria.

Explore the merits of adding a flexible mortgage to your financial armoury. These schemes allow over/underpayments and payment holidays to pre-empt potentially lower earnings or times between contracts.

If your current mortgage rate comes to an end and we are unable to find you a sufficiently low rate due to the current market circumstances, then we can look to extend the term temporarily to reduce monthly payments.

Get the most from your savings! There is one group that are clear winners from the credit crunch.....the savers!

While standard variable mortgage rates might be at a nine-year high, savings accounts have broken through the 7% interest barrier. That's because banks want to get as much money through their front doors as they can to repair the damage caused by the freezing of the interbank funding regime.

As Northern Rock proved though, banks can, and do get into problems so if you are worried about the possibility of bank difficulties do not invest more than £35,000 with any one institution as this is the maximum you're guaranteed to get back if it goes bust.

Switch current accounts to interest bearing schemes and move ongoing balances to deposit accounts. Banks are desperate for capital so shop around for deposit rates even if the cheque account remains on the High Street. Aim to build an emergency fund as a buffer against any future slowdown in contracts and for this purpose you can use Cash ISAs to benefit from tax-free interest.

You could also explore fixed rate bonds ahead of further potential interest rate cuts.

Don't put all your investment eggs in one basket Too many investors are solely focused on one asset class. Diversification is the key to a solid investment strategy regardless of whether we're in times of stability or volatility, so keep a level head and make sure your investments are giving you the widest possible exposure to a variety of different world stock markets and that you have exposure to commercial property, bonds and also gilts.

You should try to ensure that whatever happens to one particular part of your portfolio, you will have other investments that will counter the effects and level out any volatility.

In Summary, above all don't bury your head in the sand but keep an eye on your finances, its all about being proactive NOT reactive and that way you can look forward to a great summer and beyond!

If you'd like to discuss any of the issues I've raised please use the contact us form or call on 0845 062 8888 and we'll ensure that the adviser best suited to your enquiry gets in touch.

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