As turmoil at major British firms like Marks & Spencer, HBOS, Barclays and Taylor Wimpey has shown with alarming frequency, boardroom bosses on vast salaries were no better prepared for the slowdown in the British economy than families gamely trying to balance household budgets.
It’s possible that both are hit by the same thing – bricks and mortar falling in value after a decade or more in which we assumed house prices only ever went in one direction.
But while big companies go cap-in-hand to City backers or sovereign funds in oil-rich states to restore their finances, piecing household budgets back together again is a more mundane task.
With more than a million people coming off fixed-rate mortgages this year and the cost of borrowing soaring, many families have to act fast to ensure they have enough to fill the petrol tank and pay energy bills set for another surge this winter.
Says Andrew Hagger at financial data specialist Moneynet.co.uk: “Many consumers don’t use a basic monthly budget to help manage their finances, and those who do probably see it as an annual task.
“With incomes ravaged by increasing fuel, food, energy and borrowing costs, it’s time to take a long, hard look at our financial situation to see how we can get through the rest of 2008 in the most cost-effective way.”
Hagger says that with little sign of oil – or much else – getting cheaper in the medium term, it’s vital to “look at ways of reducing monthly expenditure in order to balance the books”.
Here’s his checklist for spending power:
If mortgage repayments are a problem, see if your lender allows a temporary switch to interest-only terms. Anyone with a £140,000 mortgage at six per cent who does this for three months frees up £200 a month; on a £220,000 loan, the saving is £320 per month.
Go food shopping once a week and plan your meals in advance. Only buy what you need, and save money by avoiding regular trips to the corner shop.
Before making any big purchases, check online price comparison sites like www.pricerunner.co.uk or www.kelkoo.co.uk to be sure you are paying the going rate.
Try to cut interest charges on credit card borrowing; anybody paying 16 per cent plus, not uncommon in today’s market, should consider switching to a balance transfer for life card.
“The Citi Platinum iTunes card, which has a salary requirement of £20,000, currently offers a very attractive 4.9 per cent APR rate for as long as it takes to repay your balance. You could take four or five years to pay off this sum, but the rate has been locked in,” Hagger says.
“With minimum repayments of 2.25 per cent, a £1,500 balance could be serviced for £33.75 per month.”
MBNA’s Platinum plus card also offers 4.9 per cent for life on balance transfers, with no salary requirement.
If possible, Hagger says you should try to keep new purchases on these cards to a minimum – because most balance transfers deals charge a much higher interest rate on those.
Cardholders should always try to pay more than the monthly minimum as soon as financial circumstances allow; it cuts interest charges and shortens the repayment period.
Buy petrol and food on a credit card with a cashback – the American Express platinum moneyback credit card pays five per cent cashback for the first three months (maximum £200).
If food and petrol cost £500 per month, you could recoup £25 per month for three months.
Esther James at Moneyfacts.co.uk likes the Shell MasterCard currently offering a three per cent rebate on Shell fuel purchases, plus one per cent on other spending, alongside a zero per cent balance transfer deal running for a year.
“Anybody buying fuel at ASDA with an ASDA MasterCard can receive a rebate of 2p per litre. The card also offers a zero per cent balance transfer deal running for nine months,” she says.
Work out annual costs for car tax, car service & MOT and Christmas and birthday expenses. Divide it by 12 and pay this amount into a savings account each month. This avoids having to pay a large bill from one month’s wages, and earns a bit of interest in the meantime.
Personal loans are getting pricier, with one of the cheaper providers, Yourpersonalloan.co.uk, funded by Co-Op Bank, lifting its rate from 6.9 per cent to 7.3 per cent.
But be sure to arrange payment protection insurance (PPI) on your loan more cheaply through an independent broker, like British Insurance or Paymentcare, than through the lender, which is likely to charge more.
If you haven’t reviewed your gas and electricity supplier for a couple of years, check to see if any dual fuel or online tariffs available would be cheaper than standard offers.
It might be worth checking out the British Gas ‘click energy 5’ dual fuel tariff to see if it can cut bills, on www.britishgas.co.uk/dual-fuel-offers.
Earn extra money by filing out online surveys at sites like www.valuedopinions.com.
Gumtree.com is a useful website, which enables you to type in your nearest city to find things for sale locally.
You might even be able to arrange a car-share or find things for free.
Don’t leave too much money in a savings account earning minimal levels of interest.
Budget correctly and then switch excess cash to a savings account paying more than the standard 0.1 per cent on credit in many High Street current accounts.
High-paying savings accounts with easy access and no restrictions include Bradford & Bingley’s Internet Saver, paying 6.51 per cent AER on £1 upwards, or Intelligent Finance’s iSaver account paying 6.40 per cent AER, again from £1.
We have to learn to put more money aside: in the first quarter of 2008, savings rates fell to just 1.1 per cent of income, the lowest level since 1959.
Review home and contents insurance – not just by looking for cheaper cover, but also by reviewing the quality of the cover you have. There may be scope to save money from cheaper premiums affording the same level of protection.
Finally, make the most of a sunny weekend take unwanted CDs, DVDs and children’s clothes to a car boot sale.
Three hours of hard work and willingness to make an early start to reserve a good pitch, can earn £100 cash, tax-free.
“There are no easy options here,” Hagger admits.
“It’s been a tough six months for our bank balances and with the dreaded C word (for Christmas) looming on the horizon, things won’t get much easier unless we act now.”