Money Makeover: Put your finances through their paces

Take part in Melanie Bien's cashwise health check, including 'IoS' readers' money makeovers, without even leaving your armchair

Forget giving up smoking or joining the gym: your most important new year's resolutions should be of the financial kind. Below and on the page opposite, we look at what you might want to consider during a financial wealth check, while our panel of experts review the finances of individual readers and suggest how they can be improved.

Forget giving up smoking or joining the gym: your most important new year's resolutions should be of the financial kind. Below and on the page opposite, we look at what you might want to consider during a financial wealth check, while our panel of experts review the finances of individual readers and suggest how they can be improved.

Consolidate your debts

Although you can be charged as little as 6 per cent for an unsecured loan of £1,000 from Northern Rock, if you've got debts to pay and £500 in a savings account, it's a false economy. Even if your savings are achieving the best rate of interest on the market - 4.3 per cent from ING Direct - you would be better off using this cash to reduce your debts, as interest on borrowings is higher than on savings.

Consolidation is also useful because it lets you see clearly how much you owe, making it easier to start paying the money back. How you go about consolidating will depend on personal preference, as well as on the size of your debts. You might opt to extend your overdraft, shift everything on to a credit card with a low rate of interest, or take out a personal loan (see back page).

Start saving

Everyone needs a sum of money put by for a rainy day, to cover emergencies such as repairing the car or replacing the boiler, or to tide you over if you lose your job. There are no hard and fast rules as to how much this should be - it will vary according to personal circumstances. As a general rule, three months' salary saved in an instant-access account paying the best rate of interest you can find should be enough. There isn't much point keeping more than this on deposit as you'll get better returns elsewhere.

In addition to ING Direct's 4.3 per cent, Citibank is paying 4.18 per cent gross on balances of £1 on its instant-access account, while Alliance & Leicester is paying 4.1 per cent.

But a better option would be to put the money into an instant-access mini cash individual savings account (ISAs), as interest on these is tax-free. Intelligent Finance pays 4.35 per cent interest on balances of £1 or more. Each person can save up to £3,000 this tax year (up to 5 April) in a mini cash ISA.

Switch current accounts

More than 70 per cent of us still bank with one of the "big four" - Barclays, Royal Bank of Scotland/NatWest, HSBC and Lloyds TSB - even though most of us get just 0.1 per cent interest on current account balances, and all of the big four except HSBC charge extortionate overdraft rates. But it is possible to get 3.5 per cent gross interest on your current account if you switch. Citibank Direct pays this rate, for example, as long as you earn at least £15,000 a year (your salary doesn't have to be paid into the account).

It is easier than ever to switch accounts: your new bank will transfer direct debits and standing orders for you. The Consumers' Association is running a "Switch with Which?" campaign to encourage customers to make the move. For more details of the process, and to see whether there is a current account offering a better deal for you, go to www.switchwithwhich.co.uk.

Shop around for insurance

Insurance premiums seem to rise every year but you can bring down the cost by shopping around for cover. There is no reason why you should automatically renew your cover with the same insurer; you may well find a better deal if you do some research and check what else is available.

Researching the market shouldn't be a problem, particularly if you have access to the internet. Sites such as www.moneysupermarket.com or www.moneyextra.co.uk will allow you to compare prices for life, motor, home contents, travel, holiday and pet cover.

Even if you don't have access to the internet you can still shop around by ringing a broker or two for a quote or calling several insurers direct. It is worth remembering that the cheapest deal might not offer the most comprehensive cover, though, so you should resist being guided solely by price.

If you are booking a holiday, don't be tempted to buy your cover from your travel agent: it is less hassle but it will cost more. An annual policy is also cheaper than paying for several single-trip policies, so if you are planning on taking more than one holiday this year, look for a comprehensive deal.

If you already have cover, there may be penalties for switching to another provider. If so, it is probably best to hold off until the policy is up for renewal.

Remortgage

Interest rates are expected to rise this year, and now is the time to check your existing mortgage to see whether you can get a better deal elsewhere. As a rule, if you are on your lender's standard variable rate, you will be able to save money by switching to a fixed or discounted deal. Contact an independent mortgage broker to find the best offer for you.

Some lenders charge a redemption penalty if you switch loans; but even if this is the case, it might still be worth your while doing so, mortgage brokers Charcol and London & Country have calculators on their websites enabling you to work out whether you will save by remortgaging and paying a penalty ( www.charcolonline.co.uk or www.lcplc.co.uk).

Think taxes

Self-assessment forms for the 2002-03 tax year must be submitted to the Inland Revenue by the end of January, along with any tax you owe. So if you haven't done this yet, you need to act quickly or you could end up paying a £100 fine plus interest. More tips for filling in your tax return will appear in next Sunday's Money section.

Even if you have already dealt with your return or don't have to file one, you should still examine your tax affairs to make sure you and your family are using all your personal allowances. Think about capital gains and inheritance tax, too: a little planning now could save you a big bill later.

Review pension savings

Those who haven't started saving towards a pension should make this the year they begin. The earlier you do, the better your chances of retiring on a decent pension. If your employer contributes to a company scheme on your behalf, you should join it, as your pot will grow quicker than if you just make your own contributions.

If you are already contributing to a pension, consider increasing the amount you invest each month. Check which funds your pension is invested in to ensure you are happy with the level of risk.