Five tips to keep finances on track when doing renovations: Sarah Coles

Now I’m doing a renovation of my own, and the smugness is wearing off as I struggle to stick to the budget. However, during the process so far, I’ve picked up five tips that’ll help keep the rest of my finances on track too.

Just because it’s part of your life, it doesn’t mean you need it: We spent months drawing up the plans to get them right. But when I stood in the house last weekend, I realised we were about to build a wall that served no purpose at all. It turned out we were effectively rebuilding an old bit of wall.

We can all be guilty of this when it comes to our finances. We may have things we’ve always spent money on that are easy to renew, such as mobile phone packages, gadget insurance, warrantees or memberships. When we take a closer look, we may discover that we don’t actually need any of them.

Prioritise as early as possible: There’s always an opportunity to spend money you don’t need to and can’t afford. During the building process, I’ve been sorely tempted by everything from posh windows and designer lighting to new furniture and all sorts of things I didn’t realise were an option – including £1,000 taps. Each time I had to force myself back to the list of priorities I made at the outset.

The same approach can work wonders on your monthly spending. From day one you’ll be assaulted by things you want, so it helps to have a monthly budget drawn up of all the things you actually need. You can also set up direct debits so that bills, savings and pension contributions come out of your account automatically before you have chance to spend anything.

Next, you can consider your priorities for ‘nice to haves’ for that month. If the object of your desire isn’t a need or a priority, it’s not on the shopping list.

Don’t just go with the cheapest option either: There’s a fine balance between wisely cutting costs and scrimping on something you’ll end up spending even more on to put it right. We had several quotes for the renovations, including one firm that came in more than a third cheaper than everyone else, who claimed they could be done in a month and we could live on site.

Neither of these things were true, and we’d have ended up moving out, spending more, and doing everything at the last minute so we had fewer choices and more costs. We went with the second most expensive quote, because they’d thought of everything and had great references.

The same goes for every aspect of spending – which is why people say: ‘buy cheap, buy twice’. Of course, sometimes, we have no choice but to go with the cheapest option, but we need to go into it with our eyes open and plan for its shortcomings.

Take the right risks – but plan for them: Personally, I’d ideally like to take absolutely no risk in life, but I’ve taken the roof off a house in the middle of winter and started rebuilding in a storm. I’ve recognised it’s not about avoiding risk: it’s about taking the right amount of risk, understanding it by asking all the questions you need, putting enough things in place to protect yourself (such as insurance and scaffolding), and using the right professionals.

The same goes for saving and investing. The right level of risk for any of us isn’t no risk at all, because even with a savings account there’s a risk it won’t keep pace with inflation. It’s about taking the right risk – which might mean investing in a stocks and shares ISA for five to ten years or more in a fund which reflects our needs.

Equally with investment, it’s vital to understand when we can go it alone, and when we need the help of professionals such as financial advisers.

Assume it’s going to be worth it in the long run: Keeping on top of your finances doesn’t have to be difficult, especially if you close old accounts you don’t need, and bring things together so there’s less to keep an eye on. However, occasionally you’ll need to go through a process which is harder than it needs to be, and you’ll be tempted to give up. Trying to get a council tax reduction because we’ve removed the roof and the walls on our house is proving needlessly hard. Each time they ask for something new, I provide it, and they take three weeks to write me a letter and ask for something else.

I’ve just sent them an invoice for the steelwork as requested, but have accepted this is going to be a long and arduous task. However, I will stick with it, and I will get the reduction I’m entitled to eventually. The same goes for any admin hurdle you face in your finances. You will get there in the end if you stay calm and stick with it.

None of these things are earth-shattering revelations, but they’re proving to be incredibly useful reminders to help keep a lid on costs while the work is being done. It means that when my internal Kevin McCloud is wandering around my house or my finances, there won’t have to be a moment where I mutter vaguely about debt, and then try to convince myself that whatever got me into financial trouble was really worth it.

Premium bond prizes fall

This week we got the bad news that the Premium Bond prize rate will be cut from 4.4 per cent to 4.15 per cent from the December draw, and the odds of winning will fall from 21,000 to one to 22,000 to one.

Like any horrible news, it doesn’t make it any easier that we knew this was coming. NS&I has a duty not to overpay for the money it raises for the Treasury, which means the prize rate needs to be middle of the pack within an easy access savings market that has gradually been cutting rates.

Of course, the prize rate doesn’t reflect what you’ll make. Because of the lumpy way that prizes are awarded, the average person with £1,000 in bonds will win nothing in the average month. The lengthening of the odds should be food for thought for anyone who has been losing money after inflation in these bonds. The rest of the NS&I range hasn’t escaped the chop either, with the rates on the Regular Saver and Income Bonds set to drop to 3.75 per cent AER, and the two-year British Savings Bonds now offering 4.1 per cent on growth bonds and 4.02 per cent on income bonds.

In all cases, you can do far better elsewhere.

Sarah Coles is Head of Personal Finance and podcast host for Switch Your Money On and part of the Headline Money Press Team of the Year at Hargreaves Lansdown.