Make your money work harder

Sara Bojanowski and her partner Rob are serial makeover specialists. They are now doing up their fifth home in succession. This time, though, they recently undertook a cash makeover to go with the house renovation.

Sara Bojanowski and her partner Rob are serial makeover specialists. They are now doing up their fifth home in succession. This time, though, they recently undertook a cash makeover to go with the house renovation.

When their daughter Beth became four, Rob was in a position to go back to work and increase the family income. Sara already worked full-time and Rob's return could have meant a halt to the home improvements he had been doing while looking after Beth. So Sara and Rob took stock and decided to take some of the capital out of their home to pay professionals to finish the work.

The couple had bought their house in Littlehampton, West Sussex, three years ago with a Nationwide standard variable rate mortgage. In March, they switched to the Chelsea Building Society. The loan is more expensive than the old one, on a monthly basis, because Chelsea's present SVR is 5.69 per cent, compared with Nationwide's 5.24 per cent. But Chelsea offers a 6 per cent cash-back on a remortgage, which worked out for Sara and Rob at about £4,000.

Then this winter, when they decided Rob would return to work, they took £15,000 out of the increased equity in the house, which has jumped in value from £60,000 to £90,000, to pay for the work. Their mortgage repayments were modest, so paying a bit more each month was not a problem.

"Now we could afford to pay someone else to do the house improvements," Sara says. "Every room had to be plastered and re-carpeted and we had a shower put into the guest room." This has cost them £10,000, leaving a further £5,000 to finish the job and have the garden improved in the Spring.

Their experience shows the benefit of taking stock of your financial position – a growing trend at this time of year. Instead of keeping on the same old treadmill, think carefully about your finances and be willing to do things differently. If you have to borrow to keep afloat but your house has soared in value, then it makes sense to cash in some of the value appreciation. If you are paying a standard variable rate on a mortgage then you will probably save a lot of money, possibly thousands a year, by switching to one of the best-discounted or fixed-rate deals.

Changing the mortgage offers the biggest scope for savings, but there are numerous ways to save often significant amounts. Shopping around for insurance policies could save in excess of £500 in a year, with car insurance usually the product most variably priced. The market for utilities is fairly mature and the consumer willing to move can make worthwhile savings. Many families could cut their grocery bills by £100 or more a month, without loss of quality, by moving from one of the higher-priced grocery chains to their lower-cost, no-frills, competitors.

And try to think of bank accounts as products you can choose to buy elsewhere. It became much simpler last year to move current accounts, and the financial products of the Big Four would no doubt be more competitive if more of their customers exercised this choice. You might find better rates of interest for current and deposit accounts and loans by moving to a competitor such as Halifax or Nationwide, or the virtual banks such as Cahoot, Smile and First Direct. This applies equally to credit cards. If borrowers make just one New Year resolution, it could be to pay off the balance on any high-interest credit cards and move continuing debt into a bank loan.

It is equally important to review your investments. Anna Bowes, investor services manager at IFA Chase de Vere, urges people to regularly re-evaluate these by asking themselves questions. "Have your objectives changed? Do you now need more income, while your investments are geared towards growth, or vice versa? Bearing in mind the volatility in the stock markets, have you got enough money on deposit for emergencies that may occur if we see more volatility? Have you reviewed your savings accounts recently?" Ms Bowes adds: "This is now a very competitive area and you must keep an eye on it to get the most competitive rate. Consider using the internet to open an account. That has come on strongly this year and can produce far better rates. Remember that 31 January is the end of the valuable facility to carry forward any pension allowance in conjunction with the carry-back, which means this is your last chance to go back seven years and use any unused pension allowance." The most important thing is to take control of your finances. The first step is to evaluate how you spend and earn your money, to making more use of it. It could be a productive use of those remaining hours before the new working year captures us again on Monday.

paulgosling@msn.com

1 Remortgage your house. You are probably paying more for your mortgage than you need to. You might save thousands moving from a standard variable rate to the best discount or fixed rate. Shop around.

2 Pay off the balance on your credit card. If you have are carrying a balance of £2,000 on a standard Barclaycard, you are paying £358 (17.9 per cent) a year interest. If you converted that into a bank loan with Cahoot you would probably pay £200 less.

3 Change your credit card. If you are with Barclaycard, or one of the other high-charging cards, ask yourself why. Try Egg, which has a six-month interest-free period for transferred balances and for initial use of the card. When the introductory deal comes to an end consider moving the balance again. Or pay off the balance every month.

4 Clear out the overdrafts. Never go overdrawn without authorisation. If you have to borrow regularly use a bank loan, not an overdraft. An unauthorised overdraft with NatWest costs 29.5 per cent; a loan with Cahoot will typically be 8 per cent.

5 Move your bank account. The big clearing banks pay next to nothing on their current accounts, just 0.1 per cent. If your account often carries reasonably large balances it could be worth moving to Cahoot which pays 4.55 per cent on balances as small as £1. Put the money into a savings account or move to an offset account, where your credit balances are counted against your mortgage to reduce your interest charge.

6 Switch gas and electricity suppliers. If you are buying energy from British Gas and your old regional electricity company the chances are you are paying too much. Check the prices from competitors.

7 Switch phone company. Your local cable company may offer a cheaper deal than British Telecom.

8 Sell surplus assets. It's astonishing how many people have valuable property sitting somewhere, say, an old car waiting years to be renovated, first-edition books that aren't treasured, antique furniture hidden to protect it from the children, toys and stamp collections from childhood that are worth more than their owners think. But get a professional valuation first.

9 Shop around for insurance on motor, buildings, contents, travel, whatever. Two hours on the phone could cut the car insurance from £700 to £400. Higher premiums can be cut by much more.

10 Re-evaluate your investments. This is not a good time to sell stocks, but a careful buy could pay off. Take a close look at the property, bonds, stocks you hold to check on value and performance. And it always helps to seek professional advice.