SAGA — Doing things properly

10 ways to save money

Spending less is like losing weight - simple but not easy. Eat less and you will lose weight. Simple. But eating is nice and hunger is not - so not easy, writes Paul Lewis

Spending less is hard because buying stuff is fun - and wanting to is painful. The truth is though we buy clothes we never wear, gadgets we never use, food that ends up in the bin. One insurance company has estimated that on average each of us spends £1724 a year on stuff we never use. Altogether that is £80 billion. Here's how to make saving simple - at times easy.

1. Keep a spending diary - How often have you been to the cash machine and taken out £30 and by the end of the day it's gone? And try as you might, you just cannot write down even half of what you've spent it on. So keep a diary of it. Every time a coin or note leaves your possession, write it down. Just doing that will mean you spend less. And at the end of the week - or better still a month - analyse it. Best to do that in private, because it will be embarrassing.

2. Cut back on little things - If you spend £3 every working day on, say, a coffee, a tea and a newspaper, over the year (and you have a few weeks' holiday) that will cost you £670. If you are at work and under pension age you will need to earn £1000 a year to have £670 left to spend. So spending £3 every working day is like a pay cut of £1000 a year. Or put it another way, if you stop spending £3 a day it is like a pay rise of £1000 a year. I wouldn't turn that down.

3. Move your cash - Where do you keep your money? In your pocket? A purse? A wallet? One place for your coins and another for your notes? Wherever it is change it. So next time you want to buy that £3 magazine that will last you about 20 minutes or the £6.99 DVD of a film you never quite got round to seeing at the cinema (and probably won't at home either), your hand will go for your cash - and it won't be there. Use those extra seconds to think - 'do I really need it and will I ever use it?' And if the answer is 'no', put it back before you remember the new place for your cash.

4. Change banks - Nowadays every penny in your current account should be earning you money. Of course the banks would rather it didn't. They prefer it when you make them an interest free loan of your current account cash.

It may not be much, but with millions of accounts with billions of pounds in them, the banks do very nicely lending it out overnight and earning money on it. So while you are asleep your money isn't - it's working for the bank.

Switch your current account to a bank that pays at least a half-decent rate of interest on it. If you have an income of at least £1000 a month - and that can be between you for a joint account - then you can get 4% interest or more with some high street banks.

If your income is less than that, you will have to do telephone or internet banking. But you can still get more than 3%.

5. Cancel life insurance - The insurance companies will tell you that we do not have enough life insurance - or protection as they prefer to call it. Nonsense. Many people have far too much. Of course, life insurance is essential if you have people who are genuinely financially dependent on you or if you have a joint mortgage, so that it is paid off when either of you dies. But as we get older our children leave home, our mortgage is paid off, and yet we often carry on paying for life insurance. If you don't need it now, stop it.

6. Warranty savings - As soon as you've bought that digital camera, new television, or MP3 player, the shop assistants will ask if you want an 'extended warranty'. That is just a fancy name for insurance in case something goes wrong and you need to pay for a repair. But all retail goods have to last a year anyway, many come with longer guarantees than that, and generally electrical goods are very reliable. And the insurance is often limited and hard to claim on. Say 'no' and save yourself a packet.

7. Change energy supplier - If you have never switched your gas or electricity supplier then do it today. You can easily save £150 a year if you switch them both - though it is not always best to switch them both to the same supplier. And you should do it now. It is quick and easy using any of the switching services available on the internet. You can find a list of them at www.energywatch.org.uk or go to www.which.co.uk/switch.

If you have switched already, the advice is a bit more difficult. Prices are changing every few months. That means that some suppliers who have not yet raised their prices may be cheaper today, but more expensive when their prices rise - as they almost certainly will. So if you have already made that initial saving by moving from British Gas and your local energy supplier, it will be harder to be sure you will save. But it may still be worth it.

8. Pay by direct debit - A lot of people hate direct debits. Before they were invented only you could take money out of your bank account. But with a direct debit you give a company a key to the back door and they can nip into your account and take money out when you owe them something. But don't worry. There are safeguards. The banks agree to reimburse you if a company takes money out when it should not or takes the wrong amount. And if you agree to pay by direct debit, you will save money; 5% or even 10% on gas, electricity, telephones, subscriptions and many other things you buy regularly.

9. Don't invest if you have debt - If you have spare money then saving or investing it is probably a good idea. But if you have a debt it is always better to use spare cash on repaying the debt rather than investing it. Shakespeare told us 'neither a borrower nor a lender be'. It is definitely better not to be both at the same time.

10. Turn down instant credit - We've all been tempted. You want a sofa or a cooker or a television and you are offered a deal that seems to make it easy to afford it now. But credit deals offered by retailers are usually bad news. Either they come with hoops you have to jump through - pay nothing if you repay in full in seven months' time. Or they offer really bad rates of interest. Or there are default charges or catches that mean they could end up very expensive. There is no harm in borrowing to buy something if you have to. But it is better to use a credit card or arrange a bank loan if it is for something really big.

* Read more about managing your money in Paul Lewis's book Money Magic (2005).</p>