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The Credit Cruncher was conceived to help you to keep up to date with credit crunch and recession developments, it provides some helpful credit crunch advice and it addresses personal debt. The Credit Cruncher also seeks to explain how the credit crunch started and shed some light on the worldwide recession. Recently, we have begun to look at how BREXIT will affect the UK economy. Please feel free to leave comments where relevant.

13 Nov 2008

Credit crunch advice

One of the main themes of conversations at the moment is how to survive the credit crunch and the coming recession. Everyone has their own ways that they have found to promote frugal living and as I have been doing this seriously for a couple of years already, I think I am well-placed to offer some advice.
Here are my hints and tips:

1.Look after the pennies - it's an age-old adage but one I have been forced to use as the bedrock of my financial planning. I don't smoke or drink to any degree, I hardly ever go out for meals or entertainment (such as films or clubs) these days, so where are the savings to be had?
Take a look at the smaller expenses, the snacks you buy on a daily basis, the regular outgoings that you don't really use (gym membership etc..). Imagine the money that you spend this way in a month is sitting in your pocket as a lump sum - does that feel good?
I have a simple strategy for coping with impulse buying including snacks (I have a very healthy appetite), my strategy is that I don't carry any money, therefore I can't impulse buy! If I feel the need to supplement my (home-made) daily lunch, then I make a special trip to the supermarket and buy cheap snacks in bulk packets to make sure I get the best value for money. This usually has to wait for the weekend because I just don't carry ANY money on a day-to-day basis.

2.Make a budget - if you do only one thing after reading everything written about saving money let it be a BUDGET. You cannot seriously engage with your finances without getting busy with a spreadsheet whether it be in EXCEL or an a scrap of paper. List ALL your monthly outgoings that you are aware of - every regular payment and include anything that you can think of even haircuts and anything else that involves money leaving your pocket or bank account. Balance that against your net income for the month and calculate the difference - hopefully this will leave you some spare 'disposable' income - but in the event that it doesn't - get busy with the red pen and strike out any stuff that you don't need - even if you thought you needed it, ask yourself if it's worth going bankrupt for and I bet the answer is no!
If you still come up short, and you have a mortgage, get in touch with the mortgage providers straight away and start a dialogue with them. If on the other hand you have come up with an amount you can work with, this is the money you can spend - this and no more!

3.Don't spend twice - This is the favourite trick of the optimist - if they have a disposable income of £50 for this month, and see just what they always wanted in a shop for £49.99, the temptation is to say 'I can afford that' without remembering to stop spending the £10 a week that the budget usually allows for. The easiest way to cope with a tight budget initially is to deal in cash. Have your monthly disposable income in your pocket and you will be completely aware when it has gone! I would recommend this as a way of doing weekly shopping too - take your shopping budget in cash to the supermarket and calculate your spend on the way round, this is by far the best way to discipline yourself to stick to a budget.

4.Pay off your debts - this should be a priority, and if you have not allowed for paying off debts (not just minimum payments) in your budget, then you must allocate some of your disposable income to actually reducing your debt. I recommend keeping track on a spreadsheet (or even a graph) so you can see your debt coming down - this will encourage you when it all gets a bit much (see how I made a graph of my debt). When you are finally debt free, all the money that was going towards this will then suddenly become disposable income. Until you are debt free, my advice is not to even think about 'saving for a rainy day' - I would pump everything into paying off the burden of debt and think about how I can invest some of my income later. The only time this is not advisable is if you can make more interest on an investment than you are paying for interest on your credit. This includes 0% interest deals - all 0% interest for balance transfer deals are time limited, often for 12 months - you should really be making good use of this interest-free period to pay as much off your card as you can afford. If you are not making use of it in this way, you are just putting off the inevitable and no advice I can offer will help.

These are the thoughts that occur to me now, by no means are these exhaustive, I'm sure I will be able to come up with more, and I really feel I can expand on the o% interest credit cards as these have been the main vehicle that I am using to be debt-free by before the end of next year. Feel free to suggest your own money-saving ideas in the comments.

Related posts:
How to survive recession
Worth investing in a pension?
Will we all end up broke?
How long will the credit crunch last?

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