Its not often a topic thats considered on most preparedness blogs, though there are a fair number of honourable exceptions. But on forums, you’ll often see comments about saving up for something, or how to get something cheaper at a website rather than a shop (just like any other form of shopping these days!) and it’s something I’ve had to consider myself, so I thought a blog post would be a good idea.
Already convinced? Go to the bottom of this post for the recommendations, in blue. They’re also at the end of Part Two of this article.
Paying Off Debt
For anyone who wants to look after their finances, the first advice is nearly always to pay off your consumer debt, if you have any. At the time of writing, the very cheapest loan available, according to www.moneysavingexpert.com, is 3.6% a year, from M&S Bank, for loans between £7.5k and £15k. But rates can be much, much higher, for general loans, car loans, improvement loans, credit card debt, anything. And payday loans, if you feel driven to use them (which I heartily advise you not to do), are likely to be literally a thousand times that: 3,600% as an annualised rate is not unknown.
There are many reasons to pay debt off: lower outgoings give you more flexibility and more safety, for instance, if a personal SHTF situation occurs (job loss, severe illness, that sort of thing). You’re not wasting money on interest payments, money which could be accumulating in your savings account or in buying food stocks, or tools, or firewood. And those sorts of purchases will also give you more flexibility and more safety. If you’re debt free, financial institutions have less power over you, and less knowledge of you. I feel the power issue is particularly important.
Some debts are called “priorities”: mortgage or rent, tax and utilities. Failure to pay these puts your home at risk, in all seriousness. It’s not a common thing, but it really does happen, so take extra care about these.
The very best advice, freely available to all, is on the page that I’m linking to here. Every link on that page is a goldmine, especially for people who are in debt, but for anyone, really. Cutting existing debt costs, cheap new borrowing to replace higher rate borrowing or fund an emergency purchase like replacing a broken down boiler, cashback, debt help, calculator apps for all sorts of things (even including cheaper phone calls, which have their own page anyway), plus lots of links to the forum in the right hand column. The forum is astonishing, in a wonderful sort of way: it would take you weeks to look over the whole of it, but there are two boards in particular to visit first. Debt Free Wannabe, exactly what its name implies, and Old Style Moneysaving are worth their weight in gold to almost anyone. Old Style is about stretching money as far as it will go, and the posters on there can make it stretch a very long way indeed. Cutting discretionary spending, finding cheaper ways of doing things, reusing and recycling, are all in there.
The sky’s the limit for learning how to save money and even make money, whether you’re on the main site or the forum: your tax bill, your holiday, utilities, your mortgage, your pension, motoring, everything. It can save you thousands of pounds over the years.
What Then? Savings
To be prepared, you need to work on getting yourself some savings. What if every bank had their software go crazy, as has happened to individual banks recently? You can’t use your debit card or credit card in those situations, not even at an ATM. Having enough cash to pay for your groceries, or your petrol to keep you mobile for emergencies, is really important.
Having savings in the bank, earning as much interest as you can, is also part of the way forward. Look for the highest possible interest rate, of course, taking into account whether its taxed or tax free (again, moneysavingexpert can help you with all of that). Some of your savings should be in easy access accounts, and some can be locked away, which usually gets a better rate of return. So far, so normal.
Money Prepping Stage One: A Stash
Having a bit of a cash leeway, well hidden safely at home, is a good thing. This should mostly be in notes (what if there was an emergency and you had to spend the night in a B&B, or your car was off the road and you had to pay a taxi fare to see a dying relative?). Some of the cash leeway should also be in coins: either for vending machines, or for small payments you need to make when you don’t want to flash notes around, if you don’t know or don’t trust the area you’re in. Although I’m saying it should be well hidden at home, some of your stash should also be well hidden on your body, if you’re not in walking distance of your home.
Money Prepping Stage Two: Protection from Bail-Ins
Basically, if you’re able to grow your savings and investments, don’t keep them all in one place. Governments are now refusing bail outs (when taxpayer money saved the banks, in the financial crisis of 2008) and the concept of bail-ins has developed: when the money painstakingly accumulated by savers is used to save the bank. This is what happened in Cyprus in 2013: savings were hit. If you had a deposit of more than E100,000, 37.5% was taken by your bank to shore itself up, and another 22.5% was frozen as a possible buffer. The figures I’ve quoted are in The Telegraph.
Any other, future bank crashes will almost certainly be dealt with by bail-ins, and this article from The Huffington Post goes through it well.
It sounds a lot of money, doesn’t it, E100,000. But that can apply to pensions too, nowadays. And if you’ve just sold your house, or a parent has died and you’ve sold their house, well, that counts too.
The only way to protect yourself, if you’re keeping your money as money, seems to be to keep it in separate accounts – as small as possible, I’d say. So if you’re one of the careful people who’ve managed to open an ISA every year for ten years, don’t transfer them all to the same institution, keep them in at least two separate institutions.
And of course, this also protects against a straightforward bank collapse! If there’s no bail in or bail out, a bank thats in deep, deep trouble will collapse. Deposits are supposed to be safe, and until the financial crisis that was definitely true. Now, who knows? The rules and the institutions they govern are changing. I don’t believe any bank to be safe enough to put all my financial wealth with it. Just my opinion.
Money Prepping Stage Three: Keeping Your Savings Safe
This is the last of the big stuff, and it won’t really matter until you’ve got a fair amount of savings, but as you save for your house deposit or any big purchase, or your retirement, it becomes crucial. It’s basically an amplication of the previous point, Money Prepping Stage Two.
There are five points I’m going to list here, shamelessly lifted from Moneysavingexpert. The reason they’re so important is because of all the mergers and takeovers that have happened since you opened whatever account it is that you have. Sometimes the accounts are all safe, sometimes a bundle of accounts is only as safe as one account.
1. Every UK-REGULATED account gets £85,000 protection
All UK-regulated current or savings accounts and cash ISAs in banks, building societies and credit unions are covered by the Government-backed Financial Services Compensation Scheme (FSCS). So if the bank fails, you’d get back up to £85,000 per person, per financial institution. The majority should get it within seven days.
2 Not all UK savings are UK-regulated
Most banks, including foreign-owned ones such as Spain’s Santander, are UK-regulated. Yet a few EU-owned banks opt for a ‘passport scheme’ where you rely on protection primarily from their HOME government.
This includes Triodos etc. Moneysavingexpert has a full list of the relevant banks.
3. The amount’s double in joint accounts
Cash in joint accounts counts as half each, so together you’ve £170,000 protection.
If you’ve an individual account with the same bank, half the joint savings count for your total exposure, and any amount over £85,000 isn’t protected.
4. An institution is not the same as a bank
The protection’s per institution, not account. So four accounts with one bank still only get £85,000. The definition of ‘institution’ depends on a bank’s licence and giant banking conglomerates make it complex. For example, sister banks Halifax and Bank of Scotland’s 5. Spread savings to keep ’em safe.
5. Spread savings to keep ’em safe
For perfect safety, save no more than £83,000 per institution (the extra £2,000 gives room for interest). Spreading can be worth it even if you’ve under £85,000; if your bank went bust, the money could be inaccessible for a spell. Using two accounts mitigates the risk.
I strongly advise you to read the full page I’ve linked to: there’s a lot of really good information there.
Pay off your consumer debt as soon as you can. Pay off more expensive debt first. Not paying some bills can endanger your home, so make sure those are paid most of all.
Consider your outgoings, and cut them down if at all possible.
Minimise your outgoings by looking for cheaper deals on things you need: fuel, insurance, utilities, phones, broadband, anything and everything.
Have a little stash of cash at home, somewhere very safely hidden, in notes and coins. Remember to take this into account in your insurance. Take some of your stash with you if you’re further away from home than walking distance.
Start saving – easy access, then locked away. Consider tax free savings.
Don’t use one financial institution for all your dealings: spread the risk of bail ins and collapses.
Have two credit cards available, unless you don’t trust yourself with that amount of credit.
Have two current accounts available.
Make sure you have online access to your money, if at all possible. Remember computer security.
Make sensible purchases with the money you’ve freed up: food, small portable things like tools, thermal wear and water filters; gardening equipment; skills tuition; or bigger investments like double glazing or a multi-fuel stove.
Use loyalty cards, to lower the cost of your goods.
I’m always up for learning more about handling my finances, if you have anything to add, or any queries, let me know in the Comments below.