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Financial journalist Katie Morley puts credit into perspective and shares her top tips for staying debt-free.
Saving up for the things you really want - whether it’s your dream wedding, the holiday of a lifetime, or something special for your home - can be a little daunting if you don’t have much spare cash.
The reality is, most of us can’t afford everything we’d like straight away. But by getting smart with your money, you can save cash and afford these dream purchases sooner than you think, without getting into debt.
The credit catch
A “quick fix” route to buying something expensive is to reach for the plastic - but be warned: credit cards are not always the smartest way to spend.
Many credit cards tempt you to borrow with an interest-free period of several weeks or months. Credit firms know most people would rather not wait to buy the things they want.
If you know you can pay off the bill before the interest is due, that’s fine. But the ability to spend money now and pay it off later comes with a hefty price tag if you can only make the minimum repayments - or worse - can’t pay it off at all.
If you leave the debt racking up it could take a long time to repay, as well as costing you a small fortune in fees and interest.
If you’re in any doubt about your ability to repay in time, use credit with extreme caution.
There are loads of ways you can tweak your everyday life to save hundreds - or even thousands - of pounds.
Try banning impulse purchases. For example, if you hadn’t planned on picking up a magazine and a packet of sweets at the till when paying for your essentials, leave them on the shelf. It takes self-discipline but is worth the effort. Over the year, you can save quite a tidy sum of cash.
Another simple way to cut back on your daily spending is by buying a coffee as a treat, instead of every morning. Make a pot at home and carry it to work in a portable cup, so you don’t miss out on your daily caffeine fix. The same goes for buying lunch.
Alison Treherne, a financial adviser at Shore Financial Planning, has another handy tip for cutting down on your spending: comparing prices online before you buy. “You could even do this in store on your smartphone,” Alison says. “This gives you the opportunity to touch and try on things, then go home and buy them cheaper online.”
Once you’ve done your shopping, you can also use “cashback” websites, such as TopCashback and Quidco, to claim free money on your purchases (you can check whether items qualify for cashback before you buy them).
Finally, set up a Pinterest page to represent things you want to buy. Seeing a mood board of your dream purchases helps put your spending into perspective. Edit the page regularly to see if you’ve gone off certain items, and resist buying anything until it’s been on your page long enough for you to know you really, really want it.
Once you’ve used these tips and tricks to free up cash, put some money from your salary straight into a savings account.
Find the account with the best rate and make payments on the day after you get paid, avoiding the temptation to fritter it away during the month.
The interest generated will help you in the long run and, the longer you save, the greater this growing effect will be.
One last tip to increase your monthly savings is to consider asking for a pay rise.