Reforms to tax and benefits that come into force in April will leave the average household £200 worse off, according to the Institute for Fiscal Studies (IFS) ñ on top of the £480 that Januaryís VAT rise will cost us this year.
Among 45 changes identified by money education charity Credit Action:
ï The threshold for paying higher rate income tax will fall, bringing 750,000 more people into the 40 per cent bracket
ï National Insurance contributions will rise by one per cent
ï Fuel duty is scheduled to go up by a penny per litre ñ although this may be withdrawn in the forthcoming Budget
ï Increases in benefits, tax credits and public sector pensions will be linked to the Consumer Price Index instead of the more generous Retail Price Index
Add in rising prices, the probability of an increase in interest rates and further job losses and, says, Joanna Parsley, associate director of Credit Action, ìIt is vital that everyone looks to revisit their finances and get them in order.î
So how are you going to save the forecast £480 ñ and the rest that youíll probably need to find this year? Here are five ideas.
Do your sums
Start by drawing up a full list of everything you spend, from rent or mortgage to your lunchtime sandwich. Donít forget irregular payments, such as the cost of your holiday or replacing white goods. Then write down all your sources of income: what you earn, any benefits and interests from savings. Deduct your spending from your income ñ and pray thereís at least £480 left over.
Check your credit history
You may need to borrow more but donít jump the gun ñ check your credit report first. It lists your loans, cards, mortgage and even mobile and catalogue accounts, along with your repayment history. Lenders look at it when they assess whether youíll be a reliable borrower. What they see will affect the deals you can get and may even have an impact on the interest you pay, so itís crucial that everything is accurate and up to date. Itís free to see your Experian credit report with a 30-day trial of CreditExpert. If you find anything you disagree with, contact the relevant lender as ask for it to be amended.
Identify easy wins
The easiest way to cut your spending is to pay less for the essentials, such as gas, electricity and insurance. Get the last yearís bills out and visit price comparison sites to see what you can save but donít ping off lots of applications in the hope of getting a good deal. This is because some of them might involve a credit check, which will leave a footprint on your credit report. If you collect a lot of these in a short space of time it may suggest youíre desperate for credit or that fraud is taking place. Instead, do your research carefully and only apply when youíre sure youíve found the offer that will suit you best. You should always be aware of a credit check because you have to give your permission before one can take place.
Curb the urge to splurge
Turn saving cash into a challenge. There are dozens of websites and magazines dedicated to saving money but be wary of deals that seem too good to be true. They may be a con or carry hidden fees. Instead, exercise your common sense in simple ways. For example, you could make back that £480 by using the office coffee machine instead of hitting the coffee shop every morning and making your own lunch rather than going to a cafÈ. But donít go without, or youíll fall off the non-spending wagon. Be inventive ñ swap homes with friends when you need a holiday, try new recipes instead of eating out, share wardrobes with your friends so you donít need to buy new clothes. The list is endless.
Know the score
You may be thinking about switching to a 0% interest credit card deal, either for your existing balance or for new spending. Before you apply, itís sensible to get an idea of your credit score ñ a number calculated by lenders to assess the probability that youíll repay what you owe. Generally, a higher score means itís more likely that youíll get the deal you want. You can see your Experian Credit Score as often as you like during your trial of CreditExpert. If youíre not doing as well as youíd like, a few simple steps can boost your score. For example, registering to vote at your current address could add valuable points.