Talking to a daily nanny in Surrey the other day, I was worried to hear her talking blithely about her 18,000 debt. 'Well, I just like shopping,' she explained, 'and if I'm unhappy I shop even more.' Like most people in debt she had an overdraft, credit card debts and a car loan and owed money on a store card or two.
Now, I happen to know that this nanny's net annual salary is only a couple of thousand pounds more than her total debt. But that still didn't seem to bother her. Not only that, but although she was able to pay her monthly bills, it had not occurred to her just how much money she was throwing away in interest payments. When I pointed out to her that at an average rate of around 17 per cent APR (Annual Percentage Rate) she was effectively flushing more than Pounds 3,000 a year down the toilet in interest payments, she did at least start to look concerned.
The problem is that this nanny is not unusual. Millions of Britons are in debt right now, and even those who are not in debt are not saving anything like enough for their futures. The average personal debt in this country is just under 6,000 per head (just under 8,000 in Scotland) and as a nation, including mortgages, we currently owe a staggering 940 billion. That's a heck of a lot of interest payments each month!
Nannies may not be among the higher paid workers in the country, but that doesn't have to stop them becoming millionaires in time. Yes, really. If you learn to manage your finances now, get out of debt, start to live below your means (rather than above them, as half the country apparently is doing) and invest as much as you can afford each month, then you can look forward to a golden future, full of cruises round the Med and hot and cold running toyboys - if that's what you're into!
It does take some effort, but once you've got into the habit of spending less than you earn and making the most of the cash you have left over, creating a wealthy future for yourself shouldn't take you more than a few hours a year! Just follow these ten steps now and keep doing them until they become second nature.
1 Get out of debt NOW! Being in debt costs you money every day in interest payments and bank charges. Pay as much as you can each month into your most expensive loans (probably your store card bill) while paying the minimum on the others. When you've paid that first one off, throw as much money as you can into the next most expensive, and so on. If you don't know what interest rate you're paying on some of your debts, call the bank or credit card company and they'll tell you what APR you're paying. The higher the APR, the more expensive the debt and the quicker you need to pay it off.
If your problems are too complicated and you're getting nasty letters from creditors, don't go to a debt counselling company that charges a fee for their services. The Citizen's Advice Bureau offers the same service for free. Or try other free services like National Debtline (0808 808 4000) or Consumer Credit Counselling Service (0800 138 1111). You can also get a lot of information and online help from the Motley Fool website at www.fool.co.uk. They have lots of articles on getting out of debt and even a live discussion board, 'Dealing with debt', where you can get help and support from others in the same situation.
2Once you've paid off your debts, start saving and investing. Keep a spending diary for one month. Write everything down that you spend - each Starbucks latte, each bus ticket, each magazine - and at the end of the month look at your spending pattern, find out what you are genuinely wasting money on and, therefore, where to cut back.
3Start saving the money you have left over each month in a high-interest bank or building society account. You can find out the best rates at www.moneyfacts.co.uk or www.moneysupermarket.com. Ideally you should be saving enough to cover you for three months in case you lose your job, become ill or suffer some similar catastrophe.
4Once you have enough money in a savings account to cover you for emergencies, set up a standing order each month into a good investment for your future. The best place to put your money so that it will grow in the long-term is the stock market. Now don't panic! The stock market is quite safe if you leave your money in it for more than five years. Ideally you should think of investing in it for your retirement - which is decades away and quite long enough for you to make a tidy sum.
The easiest and cheapest way to invest in the stock market is to put money into an Index Tracker. This is a fund that invests, according to a computer formula, in all the top companies in the stock market. It's cheap and, over time, performs better than most other investments.
5Make sure that any long-term investment you make is done through an ISA (Individual Savings Account). ISAs are not products themselves, they are just 'wrappers' that you wrap around an investment to stop you having to pay tax on it. You can put up to 7,000 a year into an ISA-wrapped product. Many investments come already pre-wrapped in an ISA (just look at the posters in your local building society to see the adverts for their cash ISAs). You can invest in an Index Tracker through an ISA. Several companies currently offer pre-wrapped tracker funds, including Legal and General (tel:0800 0920092), M&G (tel: 0800 390390), Scottish Widows (tel: 08457 678910) and Virgin (tel: 08456 101020).
6Consider taking out a pension. Less than 40 per cent of women have a pension fund, which means millions of us are facing an impoverished old age. If you are a private nanny working in a family, your employers are not obliged to offer you a pension, but it may be worth setting up a personal one. Most personal pensions are expensive and a waste of money, but the new stakeholder pensions have low charges and are likely to do quite well.
Several companies offer stakeholders, including Legal and General, Marks and Spencer and Norwich Union.
7Be a rate tart! If you have a mortgage, keep your eye on new, cheaper deals coming on the market, and switch. Look in the Sunday newspapers for the best deal, or check out www.moneysupermarket.com or www.moneyfacts.co.uk. You can save thousands of pounds over the long-term even if you find a deal that is just half a per cent cheaper. Also, find the lowest APR for any loans or credit cards, and keep switching when new deals come up. Switch your credit card and store card balances to 0% interest cards and you'll find it's quicker to pay them off. But DON'T start spending again on the new card. The object is to get rid of your debt, not create more.
Also switch your gas, electricity, phone and mobile phone providers each year if you find a better deal. Look at websites such as www.switchwithwhich.co.uk or www.buy.com or www.uswitch.com.
8If you really want to use credit or store cards, always pay the balance off each month. If you don't, you will be paying a lot extra for anything you buy. For example, buy a 200 suit with a store card at 29 per cent APR (as most of them disgustingly are) and if you only pay the minimum each month (usually about 3 per cent) it will take you five years and 11 months, and the total bill will be 412.61!
9If you have debts to pay or you don't think you can save enough for your future, earn some extra cash on the side. There are hundreds of ways of doing this, from extra babysitting or dog-walking to taking part in market research focus groups (try www.sarosresearch.com). Or you could clear out your junk and sell it at a car boot sale or www.ebay.co.uk, or unload books, CDs and videos at www.amazon.co.uk. If youre good at making things, you could turn your hobby into money by selling them at fairs or on the internet. If you have a car, and your employers don't mind, you can make up to 200 a month by having adverts put on it (find out more on www.adsoncars.com).
10Arguing about money is the number one cause of divorce, so if you are married or co-habiting, make sure you and your partner discuss and agree how you will manage your money right from the start. If both of you are working, you could each have your own accounts into which your salary is paid - plus a joint account for household expenses. Each person should put something into the joint account to meet all your monthly bills, and what's left is your own to spend as you like.
Jasmine Birtles is co-owner, with her mother Jean, of the London-based nanny agency Top Notch Nannies. She is also co-author of A Girl's Best Friend Is Her Money (Boxtree, 12.99) available in bookshops or online at www.fool.co.uk. She runs financial workshops for women around the country and can be contacted through her website www.jasminebirtles.com.
