91ÌÒÉ«

There is no scientific formula for calculating a level of income that will make us happy, as everyone has their own unique set of circumstances. However, extensive research has been conducted on the relationship between income levels and happiness. 

The Centre for Well-being at the New Economics Foundation has found that at lower income levels, there is a strong relationship between income and well-being. As you move up the income scale, the correlation between income and well-being is not so strong. 

As long as basic living requirements, i.e. food, shelter and clothing, can be met, excess income does not increase our well-being exponentially. 91ÌÒÉ« suggests that we don’t need to be rich to be happy, but sound financial management helps us avoid anxiety about money.

For some people, sound financial management comes easily. For others, the opposite will be true. Unfortunately, we sometimes don't pay attention to our financial situation, and relatively small problems can quickly escalate into a severe financial burden. As we go through the different stages of life, we will need to consider other factors and priorities. These are examples that may be relevant at different life stages:

• 18 – 25 years concerns 

Possibly single, saving for a house deposit, learning to live on a budget, paying back debt from education, balancing an active social life and giving less consideration to the future and pension provision.

• Late 20’s  to mid 40’s concerns

Possibly mortgage payments, getting married, and starting a family. Starting to think about savings, pension provision, managing debt and tackling significant life events such as divorce.

• Late 40’s onwards

Possibly starting to prepare for later life and maximising pension. Paying for children’s university education, unexpected life events, e.g. early onset of ill health, redundancy.

Financial management can sound formal, and people may imagine that only those who can afford a significant investment portfolio need to consider it. 
You don’t need to employ a financial advisor to start making a difference in your financial management. However, financial management is the term for managing your own money, regardless of your circumstances.
To get started, sit down and list your income and your outgoings.
The outgoings can be categorised into rent/mortgage payments, weekly food bills (including breakfast and lunch), debt payments (credit cards, loan payments), regular bills (utilities, insurance, mobile phone, premium TV, council tax), clothing, and social life. 
If you are working full-time employment, you will most likely have your tax and national insurance deducted at the source through PAYE. If you have joined the company pension scheme, the pension deductions will also be made at the source, so there will be no need to make a separate list of these items, as they will be deducted from your salary already.
Suppose you regularly spend more than you earn and continually use an overdraft facility. In that case, it is time to start looking more closely at the outgoings list to see if there are any easy changes that you can make. This small activity can positively impact your state of mind by empowering you to take control and take steps to change your circumstances.                  

• Cancel monthly outgoings that aren't needed, used or essential. Music streaming accounts, Video streaming accounts, satellite and cable TV subscriptions. These can add up to hundreds of pounds per year.
• Never go food shopping when you are hungry; you'll tend to buy more than you need. Also, take some time to monitor how much food you actually throw away each week and see if there is a pattern. It may be better for you to go shopping every few days rather than doing a big weekly shop, as this will make it easier to plan the food that you actually need more efficiently. This will also add to food sustainability and help reduce food waste.  
• Work out how much you would like to spend each week on entertainment and everyday items, such as breakfast and lunch. Once you have established the amount, take the cash with you in your purse or wallet and leave your debit or credit cards at home. If we are constantly using “wave and pay” technology, it can sometimes seem as if we are not actually spending any money. If we have to pay in cash, it will make us more aware of exactly how much we spend daily. The price of a morning coffee and croissant, and then a takeaway lunch, could add up to £2,300 per year if you spend £10 per day for 5 days per week over 46 weeks (allowing for 6 weeks' holiday per year). This money could go a long way toward paying for a nice holiday or toward paying off outstanding debt. 

If you have a mortgage, it is likely to be your biggest monthly expense. Make sure you are on the best deal possible, not just paying the base or standard interest rate. The best way to do this is to book an appointment with your current mortgage provider, who can give you a range of options. Issues to consider will be:

• Do you have a repayment or an interest-only mortgage?

If you have an interest-only mortgage, you must have a separate, reliable savings account so you can be sure you will be able to pay the final lump sum due at the end of the mortgage term. It may be a ‘false economy’ to have an interest-only mortgage, as although your monthly payments to the mortgage provider will be cheaper, as they will consist of the interest payment only, you will need to be saving a regular amount to build up the lump sum final payment. Throughout the mortgage term, your Loan to Value (LTV) ratio will be fixed, as you will never reduce the amount of capital outstanding on the mortgage. This means that you will not have access to such a wide range of mortgage products at lower rates throughout the term of your mortgage. Many people now opt for a repayment mortgage deal, as this provides the security that the mortgage will be fully repaid at the end of the term.

• Do you have a fixed or tracker interest rate?   

If you have a tracker interest rate, your monthly payments will not be fixed as the interest rate will fluctuate when the Bank of England (BoE) sets a new interest rate. The tracker rate will generally be 2-3% higher than the BoE rate. 

If you would prefer certainty about the amount of your monthly mortgage payments, a fixed deal means fixed monthly payments. The final deal available to you will depend on your LTV (a lower LTV means you have access to lower rates and a wider range of products) and the length of your remaining mortgage term.                   

• Have you built up an overpayment reserve?

If you have made any agreed overpayments on your mortgage so that you have built up an overpayment reserve, there are several options that you can consider when you switch your current mortgage deal. You may choose to capitalise the overpayment by borrowing it back, underpaying for a period, or taking a payment holiday. However, if you do capitalise on your overpayment reserve, this will be added to your LTV amount, meaning that the amount will not be deducted from your outstanding capital balance. Therefore, you may wish instead to lower your LTV balance if you do not specifically need to utilise the overpayments. This means you still have access to a wider range of products at a lower rate.  

• Payment holidays

If you find yourself temporarily struggling to pay your mortgage, you must contact your mortgage provider as soon as possible to avoid missing your monthly payments. It may already be part of your mortgage deal that you can have holiday payments for a period of time to help you get back into a more stable financial position. If you think that you may struggle at some point in the future, it is important to build the payment holiday facility into your considerations when switching your current mortgage deal.  

• Arrangement fees for switching your current deal

There will usually be a few choices of new mortgage products available, either with an upfront arrangement fee or without. It is usually the case that mortgage products with an upfront fee have slightly lower interest rates than those without one. It is important to carefully consider whether it is worth paying the upfront fee, as over a 3- or 5-year period, the savings in interest payments will often not add up to the fee, so choosing the product with the upfront fee would actually be financially detrimental. In this situation, ask your mortgage provider to tell you what the monthly payments would be under the product with the arrangement fee, and what they would be under the product with no arrangement fee. It is then a simple calculation to determine the difference between the 2 products over a 3- to 5-year period.       

Huge savings can be achieved by switching utility providers or renegotiating deals at the expiration of each promotional offer. At the end of any initial discount deal, providers will revert your account to their base cost, which can be much higher. Always search for a better deal using

• Cars are often the second largest monthly outgoing after your mortgage or rent payments. Most new cars are bought on PCP (Personal Contract Plans). There are several ways you can save money or avoid expenses on PCPs, or even terminate the agreement early if your financial circumstances change.

• With some PCP deals, it is possible to walk away from a PCP deal by handing the car back at any time, provided you have already paid more than 50% of the loan value back.

• You can also sell the car privately, unlocking the value locked in it to pay off the outstanding loan balance.

• You can part-exchange the car for a cheaper model. The purchasing dealer will then settle the finance account on the vehicle.
  If you have exceeded the mileage allowance on your PCP, you will avoid having to pay the mileage penalty by selling the car privately and paying off the Final Value Fee (FVF), or by part-exchanging the car.

• At the end of a PCP deal, the car will often still be worth more than the FVF. At this point, you often have the option to hand the car back to the finance company rather than pay the FVF and keep the car. The finance company will sell the car, and any funds received above the FVF will be returned to you. However, you will always get better value by selling the car yourself and using the money to pay off the FVF. The private marketplace will get a better price for the car than you will be offered in part exchange or by the Finance company.

If you intend to buy or rent a property, buy a car, obtain a loan or a credit card, or even buy a mobile phone, a good credit score is essential.

There are three main credit reference agencies used in the UK: Experian, Equifax, and CallCredit. All will provide you with a personal score for free, and a full credit report for a small fee. Every lender calculates your score and creditworthiness using their own criteria, set by the level of risk they are prepared to take, so no two scores from different sources are comparable. They all use one or more of the main credit reference agencies for their source data, though, which makes these agencies' opinion of your creditworthiness a good indicator of whether an application for credit will be accepted.

Obtain a full credit report to see what information the agencies hold on you, and check that it is correct. Keep a regular eye on your score using the credit agencies' free scoring services.

Tips for a healthy credit rating, or for boosting a poor rating, include;

• Try not to use more than 50% of your available limit on credit card(s)
• Try to make a payment above the minimum.
• Try not to use a credit card for cash withdrawals.
• Remember, credit searches will lower your credit score for six months or more, regardless of whether you took out the credit product or not.
• Pay your bills on time to avoid a late payment fee.

Further tips can be found on  and  pages.

If your debt is spiralling, you need to act sooner rather than later. Trying to consolidate debts, etc., to reduce your outgoings and repayments is much easier whilst your credit score is still sufficient to give you the flexibility to obtain credit. Examples of things that can be done to reduce outgoings are;

• You could transfer debt from a high-interest credit card to a new card that has a 0% introductory offer, or consolidate several credit cards into one loan so that you are making a fixed repayment without the option to increase the debt amount easily. Instead of using payday loans with very high interest rates, look for your local credit union. 
  These are often funded and run by local authorities, e.g. newhammoneyworks.co.uk, and offer much better terms and lower costs.

• If you are missing payments already, you could make use of the Citizens Advice Bureau (CAB), which may be able to help you talk to your lenders and come to an arrangement that allows you to repay your debts at a lower rate.