Cash is no longer king – but we still need it!
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There's still £1.5 billion old notes knocking around and we don't seem bothered, says finance guru Peter Sharkey.
News that around £1.5 billion-worth of old banknotes have yet to be redeemed more than a year after they ceased being legal tender will have encouraged many of us to take a second look at where we may have left a few ancient fivers. No joy? Me neither.
No-one seems particularly bothered at Britons' collective indifference to swapping old money for new. The Bank of England actually expected around £950 million in old £10 notes not to be cashed in, an estimate which, unlike most of the recent economic forecasts made by the Bank's governor, was remarkably accurate.
This begs the question: has cash lost its lustre? Admittedly, few people appear enamoured with the new, polymer versions of £5 and £10 notes, but the role of cash as an essential lubricant of economic activity cannot be dismissed. Or can it?
Consider this: last Saturday, my wife and I caught a train into the city, paying for our journey with a debit card. We met some friends and went for lunch. Payment method: debit card. Afterwards, the two of us meandered around town, spent an hour in Waterstones and bought a few books with a credit card. Two additional high street purchases were each made with a debit card, although before returning home we went for a drink and paid with cash, the only time we used the filthy lucre.
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Though I'm not a particular advocate of contactless card payments, which seem to me to be wide open to abuse, using plastic, whether a debit or credit card, is both convenient and saves us having to walk around with a purse- or wallet-load of cash. In short, it's probably the best way to settle a bill, provided you immediately clear any credit card debt, so avoiding interest charges.
Google 'bad financial habits' and in less than a second, 6.6 million results will confirm that failing to pay off your monthly credit card bill is the most costly financial habit of all. Failing to examine credit card statements is another, so how do we adopt good financial habits?
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Unfortunately, there's no easy answer because if you want to achieve anything in life, you have to work at it. Good financial habits are no different: most of us have to work at developing them, starting by eliminating the bad ones first.
I speak from experience; it took me some time to break the habit of paying the minimum monthly amount on my credit card, while gratefully accepting every increase in my credit limit those nice people at the card company willingly extended. With hindsight, it was akin to dealing with the Sopranos: I was paying interest on interest and at higher rates than those demanded by Tony and his New Jersey henchmen. Eventually, I destroyed the card (easy) and vowed to repay the cumulative, interest-bearing debt (much more difficult).
It took a while, but once the debt was cleared, I started making pension contributions into a fund managed by an insurance company. After a few years, during which the monthly contributions initially made a noticeable dent in our bank account, saving became automatic, the contributions less onerous. In short, saving became a habit, the dent in our account less conspicuous despite contribution levels rising each year.
There are two specific means of making a similar approach work today.
First, instead of waiting until the end of the month to save whatever remains of your salary, an arrangement fraught with potential problems and possible calls on your money, turn things on their head: pay yourself first.
As soon as you get paid, transfer some dosh into a savings account. Just £50, or £11.54 a week, is the equivalent of £600 a year.
Second, automate the savings process.
The world is awash with technology designed to help; setting up a direct debit with your bank to automatically move a set amount of money to designated saving pots, whether that's an ISA, a simple savings account or pension pot, is very easy. You may even employ an app to automatically round up your daily purchases to the nearest pound and move that 'spare' cash into your savings too.
It's likely that should you adopt these two simple strategies, you won't see many £5 or £10 notes, but the gradually rising balance in your saving account will more than compensate.
TAM Asset Management Ltd can help people save for everything from a deposit on a property to their retirement in a variety of Investment ISA portfolios. For further details, please visit the MoneyMapp website.
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For more financial advice, check out Peter Sharkey's regular column, The Week In Numbers.