Spring clean your finances early this year

With unemployment up, house prices down, and most retirement funds looking a lot lighter, 2009 promises to be another tough year. So it's worth taking time now to take control of your finances. Tim Bennett explains how.

With unemployment climbing, house prices continuing to fall, and most retirement funds looking a lot lighter, 2009 promises to be another tough year. So it's worth taking time now to take control of your finances. Here's how.

Build a financial storm shelter

You should have an emergency fund anyway, but it's particularly vital as job insecurity mounts. Aim to save at least three to six months' salary in an easy-access account. But before doing that, pay down any non-mortgage debt, especially on credit cards and personal loans. There's no point having a stash of savings earning less than 5% a year if you are being charged Britain's average credit-card rate of 17.7% on your debts.

Start budgeting

Working out exactly where money does go is vital, but takes a bit of effort. For a month, try using only cash (credit-card spending can be hard to track) and note down everything you spend above, say, £1. Divide it into columns for food, travel, clothes, bills and so on. Yes, it's painful (which is one reason why we tend to avoid it), but by the end of the month you should know roughly what was spent where. Now decide what is necessary the mortgage, utility bills, household food and insurance typically qualify as opposed to discretionary. If you are heading into the red the spending columns exceed your income cut back on luxuries, plus any unnecessary critical-illness or payment-protection insurance, to balance your books. And don't forget that you need to allow somewhere for one-offs such as car servicing, holidays and building that rainy-day fund.

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Keep property costs down

Whether we rent or own, property costs are one of our biggest monthly outgoings. For renters, the third quarter of 2008 threw up some good news the Royal Institution of Chartered Surveyors (RICS) reported that national average rents fell for the first time since April 2003 as a flood of new instructions from frustrated sellers hit the market. So if you're a tenant, you should take advantage. Next time your lease comes up for renewal, forget settling for a rent rise as Britain heads for deflation you can expect a rent freeze or even a cut. Arm yourself with information on comparable properties before negotiating and if you're in a position to sign a long lease (most British leases are absurdly short), haggle even harder and make sure any problems have been fixed before signing up.

For owners, 2009 will be all about keeping mortgage costs under control. The Bank of England base rate is already at a post-war low of 2% and is expected to fall further. That should make now a great time to remortgage to a cheaper deal. But it's vital to do your research first. You may be charged for exiting your current mortgage early and then there's the arrangement fee for the new one these average £1,000, but can be double that. Next, you'll need substantial equity in your property to get the best rates 25%, or even 40%, is now typical. As Mark Harris at Savills points out in The Observer, surveyors are being "incredibly cautious" when it comes to property valuations, so you may be better sticking with your current deal. You can check rates here.

Claim all of your tax relief

Losing money is pretty unpleasant. But do it on 'chargeable assets" and there is at least some good news tax losses. Sell shares at a loss of £5,000, for example, and you instantly create a £5,000 reduction in any gains in the same tax year if you have any or future tax years if not. So keep a note of any losses and remember to claim for them when you sell other chargeable assets for a profit. Next, don't forget to make use of the 2008/2009 Individual Savings Account (Isa) allowance. You have until 5 April to use it or lose it. Shop around using Moneyfacts.co.uk some cash Isa rates are very low. Newcastle building society currently offers the best instant-access gross rate of 4.5% if you invest the full allowance of £3,600, or try Barclays for 4.08% for a minimum £1 deposit. Meanwhile, equity investors can shelter shares from capital gains and income tax (beyond the first 10%). This works for up to £7,200, depending on how much of the cash component of the Isa allowance you use.

Learn to haggle

Many of us have tried it on holiday, so why not here? After all, with pre-Christmas sales discounts hitting 20% or even 30%, shops clearly want to shift stock. So maybe it's time to ditch that British reserve and start negotiating. For example, I recently secured a rented storage crate for the same price as I paid four years ago. No special tricks I just asked. The worst that can happen? The seller refuses. In which case, ask again!

Ditch the car

Cars are hopeless they eat money. According to the AA, running costs on a car costing between £13,000 and £20,000 that does 10,000 miles a year add up to around 60p per mile. So that 200-mile round trip for Christmas lunch could cost £120 before you've even bought a bottle of plonk. If you live in a big city and mainly commute by public transport, consider whether or not you really need a car. For example, my car insurance, servicing and road-tax bills of £1,080 a year would buy me 72 £15 taxi rides which is probably plenty for someone who lives and works around London. If you do decide to sell, you could join a car club see Zipcar.co.uk or Citycarclub.co.uk, and just pay for one when you use it. If that isn't possible then cut your running costs. Use sites such as Moneysupermarket.com to shop around for insurance and breakdown cover and even petrol (try Petrolprices.com).

Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.