Saving and spending
in the New Year
By now, those fervent New Year's resolutions – such as not to undo the benefits of a skinny latte with a Danish pastry – have probably faded away.
But as the festive season recedes into memory, it's time to make a new resolution – getting one's finances into order. With fears of harsher economic times dominating the news agenda – plus the all too real impact of the recent VAT rise – sorting out savings and spending is vital.
It's tempting to go through the bills and then decide to opt for the lowest cost for everything. There are scores of comparison websites which claim to point out the least expensive. Key in what you want to buy and the sites promise the lowest price possible.
In some expenditure areas, this emphasis on discovering the cheapest can make sense. It doesn’t matter where you buy your gas and electricity, the same stuff always comes into your home.
But the trouble with many comparison sites – to steal a quote from Oscar Wilde – is that they know “the price of everything and the
value of nothing.”
Price comparison sites
It's always possible to find cheaper. The real question is whether cheaper is better for your finances. Here's a tiny example – but repeated throughout the country – it adds up to millions. A pair of elastic bungees to hold a bag onto a bicycle luggage rack costs around £7 in a good bike shop. The same item costs £1 in one of those shops that charges £1 for everything. What's the difference? The £1 version has very little elasticity, doesn't work and so has to be thrown away as useless. The £7 version will work well for years. That's cheap versus value or penny wise, pound foolish.
It's always possible to find cheaper. The real question is whether cheaper is better for your finances.
Price comparison ignores the vital factor of service. So while one broadband supplier may cost less than another, the more expensive might be faster, more reliable and sort your broken connection on a weekend, while the cheaper one is slower and it makes you wait for that
repair until Monday.
And while a retailer might appear cheap, it's bad value if you have to pay for delivery, get zero or minimal advice, or find the store has gone out of business when you have a problem.
Food can be very price-driven. But buying the “warehouse” size packet or the very cheapest of the cheap is money down the drain if you have to throw large amounts away – let alone the environmental impact.
In financial services, there are products advertised with unbelievable headline rates. Other quoted returns are more moderate, but hedged around with often incomprehensible small print.
Cheap versus value insurance
And the cheap versus value dichotomy also applies to insurance – home and motor are two big items which are must-buys. It's nearly always possible to find “cheaper” and stay within mortgage lenders' rules for home insurance or the minimum legal requirements for car cover.
One way is to slim line the policy – pay the first £1,000 (or even more) of any household cover claim and strike out accidental damage or property outside the home clauses. Or in motor, trade down from comprehensive cover so you have to pay for repairs to your own vehicle when accident damage
is your fault.
Doing this means that you won't be covered when a cup of tea spills over your laptop and you'll be on your own when your car hits that post in the car park you failed to see.
A second way insurers can offer lower premiums – and this can be less obvious until you need to claim – is to cut customer service levels. Reducing the human being to an internet connection is cheaper but may not represent good value when you most need the insurer.
Getting your finances in order is often a matter of not wasting money rather than getting “bargains”. So here's five “ask yourself” value tips when buying.
- Will the product last?
- Does the product do exactly what I want?
- Are there hidden small print clauses or extra charges?
- What sort of after sales service can I expect?
- Have I focused on price to the exclusion of other factors?