Financial fitness for 2006

As the year draws to an end, millions of us will be making pledges to lose weight, drink less, quit smoking and take more exercise. While all very admirable, the fact is while most of us make New Year resolutions, less than half manage to keep to them even for a month.

But it is worth persevering. For example, after a year of giving up smoking - and no cheating - the cost of your life assurance and medical insurance goes down. Indeed, smokers pay around 20% on average more for life assurance. And that's on top of the extra tax they pay. Don't forget that around 75% of the cost of a packet of fags goes to the chancellor.

Meanwhile, putting the money you are saving into a nice little high paying savings account, such as Northern Rock's online tracker, currently paying 5.01% gross, could give you a nice nest egg in 12 months of £2,000 plus, assuming you give up your 20 fags a day habit.

Shedding the pounds too can cut the cost of life assurance and health insurance. Many life assurers now increase premiums by 50% for those deemed overweight or obese. If you're applying for health insurance with Bupa, it will undertake a lifestyle screening. If overweight, premiums for health cover could be 25% higher than for a person in the normal weight bracket. Having a glass too many can also push up the premiums.

If they've got it they flaunt it

You don't have to join an expensive gym to increase the amount of exercise you do. In January gyms and fitness clubs will start flaunting their new deals to get us to sign up. Last year however Citizens Advice Bureaux issued a warning about their sales tactics with many people often failing to realise that they are signing up for long-term credit deals. So beware, always read the small print.

Luckily, there are things you can do to spruce up your finances that don't require quite so much willpower and effort. All that's needed is common sense, a bit of patience and, of course, a computer mouse. Before you get into savings and investments, you must get rid of any debt. While you might think there are only 12 days of Christmas, it can in fact last a lot longer - that is if you are still paying for it months from now. In fact, around 2 million today are still paying for last year's Christmas, says debt solutions company One Advice.

Dont bury your head in the sand

Personal debt now stands at more than £1 trillion and there are more people around with extreme debt of more than £100,000. Burying your head in the sand won't solve your debt problems. And missing important payments such as the mortgage and council tax can have implications for your credit rating. First contact your lenders and ask for their advice. Sometimes they can help you reschedule your debt and may suggest lower payments over a longer period. Consider consolidating your debts into one cheap personal loan and shop around for a 0% credit card deal from providers such as Egg, HSBC and Sainsbury's Bank.

Time to switch that mortgage?

You can also save a fortune by switching your mortgage. Around 30% of us are paying our mortgage at the standard variable interest rate of 5.68%. By getting a cheaper rate, you could use the extra saved to pay more each month and clear your mortgage years earlier. Portman Building Society is currently offering a fixed rate at 4.3% for two years while Newcastle has a fixed rate set at 4.54% for three years.

Don't bank on a poor deal

Don't put up with a poor return from your bank either. If you are getting paid virtually nothing when you are in credit, get a new current account. And if you've got a packaged current account consider dumping it. These accounts can cost up to £200 a year for benefits you are unlikely to ever use, whereas you could be making money with other bank accounts. Abbey is currently offering 6% AER on balances up to £1,000 for a year for its current account, while Alliance & Leicester is paying 5% for a year on balances up to £2,500.

We also waste huge sums on other things such as mobile phones and utility providers by not shopping around. In particular, women spend £124 on average a month on clothes, says Halifax General Insurance. Not only are the garments all possibly underinsured, there is also little investment return. Putting £100 a month into a tax efficient ISA or a pension over the long term would give you the financial security that no designer outfit ever can.

20 December 2005 © Moneyextra.com

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