Whilst I’m not a great fan of DIY, I’ve put up enough wonky shelves in my time to know how important it is to have the right tool for the job.

The same applies when choosing a savings account to keep your hard-earned cash in.  Get it wrong and you could be losing out on valuable interest earnings or be unable to access your money in an emergency.

So to help you decide on the right savings tool for the job, here is an introductory guide to choosing the account best suited to your situation.

Saving For A Treat Or An Annual Expense

Anyone with their money-head well screwed on will know it is better to save up to buy a holiday or a new gadget, rather than just whip out the credit card and buy on the never-never.

However you may have a few different short-term saving goals (a holiday, a new telly, your annual car insurance payment, etc) and tracking the progress of your savings to each goal, when all the cash is in a single savings account is not ideal.

Fortunately quite a few banks offer multiple savings accounts, which allow you to separate your different pots of money into smaller, virtual accounts within the main savings account.

I currently use Halifax, but there are other banks such as ING Direct who also provide this service.

You won’t see much interest on the money you save and there won’t be any tax relief, but considering you are only likely to be saving for a couple of months to reach each saving goal, the interest and tax will both be negligible, plus your money can be accessed instantly once you are ready to buy your brand new iPad.

Saving For An Emergency

The age-old emergency fund advice recommends we hold enough savings to cover three months of living expenses for use in times of need.  Having six or even nine months coverage helps even more, but to be fair, that is a lot of money to save and considering most people probably have less than one month’s coverage, three months seems like a reasonable goal.

As we are talking emergencies, the key requirement is to be able to access your cash ASAP.  No waiting three working days for the money to be transferred to your current account or having to pay a large penalty for making an early withdrawal.

One option therefore is to open an instant access savings account.  If you want to be able to get money out through a cashpoint, opt for a bank with a network of branches, although you may find slightly better rates of interest at online-only banks.

Many banks tend to offer more favourable interest rates on savings accounts if you move your current account to them.  This could be beneficial, but check the small print to confirm the length of the deal.

It is worth remembering that three months expenses could be £6,000 or more and (hopefully) you won’t have to touch this money for years, so you don’t want to lose value through tax and inflation.

So another option is to put your emergency savings into a tax-free ISA.  Unlike an ordinary savings account, you will not need to pay tax on the interest that you earn.  This will help you combat the effects of inflation.

But it is important to check the interest rate on your ISA, as some banks and building societies will try to get away with paying a lower rate, just because you are not charged tax.

Another factor to consider with ISAs are the restrictions on how much you can save into them during a single tax year (At the time of writing this is £5,640.00, but this figure is liable to change and worth checking on the HMRC website).

Also, once you have withdrawn money from an ISA, you cannot put that money back in, so effectively your ISA limit is reduced by any amount you withdraw during the financial year.

Of course, if your emergency savings exceed the ISA limit, there is nothing to stop you from splitting your emergency fund between an ISA and an ordinary instant access savings account.

Saving For The Long-Term

If you have just inherited a lump sum of cash or have been squirrelling away savings for years and want to put it all somewhere safer than the stockmarket – but also protect it from inflation, then you should consider fixed rate bonds.

With fixed rate bonds, you give the bank or building society your lump sum of cash and they hold onto it for a set period of time, ranging between one to five years.

During this period of time the bank will pay you a fixed rate of interest and generally speaking the longer the term of the agreement, the better the interest rate you will receive.

However, you should only put money that you know you will not need into a fixed rate bond, as you will not be able to access it during the term of the agreement (or at least without major interest rate penalties).

Another thing to consider is that the rate of interest on your bond will not rise if the Bank of England rate rises, so you need to look at market trends and take these into account when deciding on the length of the agreement.

There are variations of these products available, which provide an interest rate that tracks the market, allowing you to take advantage of rising rates; but these are less attractive when interests rates are so low.

Alternatively you could look at putting your money into a fixed rate ISA, which will provide the added bonus of the tax-free wrapper.  If you are able to secure a good deal on the interest rate, then this combined with the tax-free allowance could surpass a fixed-rate bond.

Again as the ISA option will only allow you to invest up to £5,640.00 limit, anyone with a larger lump sum of cash might be better to max out the ISA limit and then invest the rest in a fixed-rate bond.

Children’s Savings

Proud new parents can invest in their children’s future by starting their savings journey through a small range of specialist accounts.

A regular savings account requires you to commit to specific monthly contributions, but will provide a better rate of return than standard accounts.

If you want your child to be able to dip into their savings from time to time, then opt for an instant access savings account.

An alternative is to open a junior ISA.  These have taken over from child trust funds which were recently phased out by the government and like their adult equivalents enable your children to earn interest without having to worry about tax.

One potential downside of a junior ISA is that unlike a savings account, your child will not be able to access their money until they are 18 years old, although this does protect the money for potential use to cover uni fees or a house deposit (or for buying a fast car on their 18th birthday!).

Choosing A Savings Account To Match Your Needs

As with all financial products, there is no hard and fast rule on what to choose – it really depends on your personal circumstances and tolerance to risk, but for cash savings in particular, the key is to achieve the balance between flexibility and being able to stave off the effects of the dreaded inflation.

Measuring your wealth is a bit like going to the doctor for an annual checkup – it is a way of looking at your financial health to detect early warning signs of problems that are developing, such as carrying too much debt or having too little liquidity (not been able to access cash savings in an emergency).

Once you know there is a problem, you can do something about it, plus knowing where you currently stand helps with financial planning and setting saving goals – especially when you want something big like a house.

Calculating Your Net Worth

Either on a spreadsheet or a piece of paper, make one list of all your assets (along with their current values) and one list of your debts (along with their current values).  If you keep a budget then you should have most of this information to hand.

Your list of assets is likely to include:

• Cash savings in bank accounts, saving certificates and ISAs
• Stock market investments, such as individual shares or managed funds
• Your home and other property, such as a buy-to-let flat (use online property portals to gauge current values)
• Valuables and collectibles (online auction sites could provide some clue to their value or you might need to take them to an auction house for a valuation)
• Pension funds (you should receive an annual statement which will show the value of your fund and many pension providers also have a facility to check the value of your pension online)

Your list of debts will potentially include:

• Credit cards
• Store cards
• Student loan
• Hire purchase loans
• Mortgage

With your two lists complete, simply total up the value of each column and then subtract the total value of your debts from the total value of your assets to figure out your net worth.

Using The Information

Depending on your personal circumstances, you will either have:

• A negative net worth – value of debts is higher than the value of assets
• A positive net worth – value of assets is higher than the value of debts

Knowing your net worth can help you make some important decisions about the way you manage your money.  For example, if your net worth is negative, the main objective will be to find ways of reducing your debts, before focusing on building up your wealth.

Having a positive net worth will be more reassuring, but you may find that all of your wealth is tied up in one property, leaving you with little room for manoeuvre if you need to access a decent sum of cash in an emergency or to cover a period of unemployment.  So in this situation the objective would be to begin building up some cash reserves.

Calculating My Own Net Worth

At the moment the net worth of the Suter household is looking pretty rosy.  The only debt that my wife and I have is our mortgage, which due to the drop in house prices is on par with the value of the property – effectively bringing us back to zero.

We also have our pension money and a fairly substantial pot of savings for our next home.  So you could say that we are in extremely good position…

However, having thought about this, I am a little bit dubious about including the value of our home in our total net worth calculation, as I think it provides a false sense of comfort.

The issue I have is around liquidity and the mortgage debt.

As we live in the property, we cannot make any money renting it out, so the only way to extract  value out of the home would be to sell it, but doing this would then leave us homeless.

This is why I can never quite understand people who claim that their home is their pension – just how do they plan to extract the value to support their cost of living?

Additionally the mortgage debt is costing us money due to the interest that the bank charges on our monthly repayments.  Debts cost you money, whilst assets (should) make you money or at least increase in value.

So I have taken a much more pessimistic approach and removed the value of the property from the assets column in my net worth calculation, but left the mortgage in the debt column.

This places us on a negative net worth to the tune of just over -£7,000 (savings pot and pension savings minus mortgage debt).  Funnily enough, that figure makes me feel much happier, even though it is nowhere near as rosy as my initial calculation, as it provides a clear debt reduction goal and highlights the risk of holding the mortgage.

I always tend to err on the side of prudence with financial calculations, but whether you decide to include the value of your home in your net worth calculation is entirely up you and should be based on your own personal circumstances.

What I would recommend though is to undertake a net worth calculation every six months or so and use this fairly simplistic financial barometer to help keep your money management on track.

More Wealth Resources

Back in September 2010 I tried to conceptualise positive and negative net worth with the Wealth Grid.  I guess it is a little bit like the game of snakes and ladders, with the aim of moving to the top of the grid, without falling back down into debt.

Alternatively there is the Wealth Creation Pyramid which provides a pictorial guide to the steps you need to take after you have worked out your net worth.

Image from http://www.flickr.com/photos/cushinglibrary/

I’ve recently finished reading The Lean Startup by Eric Ries, who has taken many of the principles of lean manufacturing developed by Toyota back in the day and applied them to successful startup businesses.

Despite the startup title, this book is a fascinating read for both the entrepreneur and intrepreneur alike, so even if you are not intending on starting your own business, there are plenty of valuable lessons on how to innovate within your organisation – which will be both beneficial to your employers and to your own career.

My advice to anyone looking to build their career or start a business in this increasingly fast-paced and unpredictable world is to get hold of a copy as soon as possible and begin implementing the advice.

In the meantime, here are some key takeaways:

Not Just Tightening Your Belt

Traditionally lean has tended to be quite a negative term – “these are lean times”, meaning that people have less money to spend and in many cases have to make do without.

In other circumstances though, being considered lean is a very positive status.  You only need to look at the world’s of sport and fashion to see how people strive to make their bodies as lean as possible.

But to the Lean Startup there is much more to it.  Being lean is all about being efficient, minimising waste, testing different concepts and continuously improving.

Efficiency

Startup businesses only have a matter of months to begin generating sustainable revenue.  Failure to do so, will result in them running out of money and going bust.

This means that every second, every penny and every piece of material or resource has to be made to count, putting enormous pressure on the entrepreneurs to ensure they invest in the right strategy, target the right market and create the right product.

Get the product wrong and you could literally waste months of development time producing the killer app that doesn’t quite make the kill (in a business sense!).

Iterative Development

To ensure they don’t waste time, money or resource with the wrong product, lean entrepreneurs and business innovators carry out plenty of testing to get feedback and continuously modify the product based on this feedback.

However they don’t bother with focus groups or questionnaires – these will only give you a limited insight.  Instead they make a very basic version of the product and release it onto the market – warts and all.

If the product is a success and sells well, they will continue developing it and if the product is a complete flop, then at least they will have not wasted too much time trying to perfect something that nobody wants.

In some cases the entrepreneur or intrepreneur has to pivot the business – either re-targeting the product to a different market, introducing a different product to the same market or even creating a variation of the product for a new market.

Knowledge Is Key

Continuously developing and testing different iterations of a product or service provides innovators with a huge amount of knowledge and learning about their target markets.

This enables them to create new ideas about what will sell and get those ideas onto the market to test customer response, so that once an ideas goes BOOM, they know they can focus on developing it into a sustainable business.

This is essentially the essence of lean startups.  Throughout the book, Eric Ries uses examples from both his own and other people’s lean startup experiences, and discusses both the triumphs and mistakes that he and other entrepreneurs have made with their own businesses.

For intrepreneurs, there are plenty of tips for dealing with inter-departmental politics and achieving managerial buy-in with a completely different take on the way performance is measured for developing new products and strategies.

So whether you are building your career or building your business, it will be well worth your while investing in a copy of this book.

Buy the Lean Startup from Amazon:

The Lean Startup: How Constant Innovation Creates Radically Successful Businesses

Photo from Betsyweber

Here is a selection of articles from the UK personal finance blogosphere that I have enjoyed reading during April.

11 Price Comparison Sites Rated

Originally the consumer’s friend, comparison sites are probably more akin to an online version of the traditional insurance broker and there are other ways to find a bargain.  But nonetheless they are here to stay and this posts turns the tables on them by comparing the comparison sites…
http://money-watch.co.uk/9313/11-price-comparison-sites-rated

Does your landlord have permission to let your home?

If you are renting you will know how much of a song-and-dance your landlord probably made about ensuring you can pay the bills, but the growing number of accidental landlords means that tenants should be taking steps to ensure their landlords are actually allowed to rent out their homes…
http://www.totallymoney.com/blogs/landlord-tenant-rights/

Money for all seasons I: income, spending and age

I like this post a lot and I think it is because it encapsulates a whole host of money lessons into one place and neatly describes what you should be doing during the Spring, Summer, Autumn and Winter stages of your life…
http://www.themoneyprinciple.co.uk/2012/money-for-all-seasons-i-income-spending-and-age/

Five tips to Save Money and Retire Early

You may have heard these timeless tips before, but Ermine takes the story forward by showing how he has used them effectively to reach his goal of early retirement…
http://simple-living-in-suffolk.co.uk/2012/04/five-tips-to-save-money-and-retire-early/

Spring cleaning our passive investing HQ

Make a brew, put the telly on, take a seat in your favourite armchair and smile smugly whilst your money works hard to grow itself.  The passive investing area of Monevator.com has had a spring clean and eagerly waits to show you how to invest with minimal effort…
http://monevator.com/2012/04/17/passive-investing-guide/

UK Personal Finance Blogosphere 2012 – Updated

Nine additional UK personal finance blogs added to the blogging superstars infographic – sorry I missed you last time round guys !!!

Recent Articles From Money Saving Challenge

Five Assertive Actions To Get Out Of Debt & Stay Debt-Free For Good

Why Entrepreneurs Don’t Need To Sell Lemonade: 5 Myths Stopping People From Starting Their Own Business

Financial Success: How To Achieve More By Doing Less!

Like many people I am often a victim of my own ambition!  I see an idea, fall in love with it and before I know what is happening I am attempting to implement it.

The problem is my little portfolio of personal projects soon starts to build up and if I’m not careful I can quickly get bogged down in the task overload, trying to do everything, but not getting anywhere fast.

Many of the ideas I want to implement are related to personal finance.  I read a lot on the subject and see plenty of good ideas, such as moving my savings to a new account paying a better rate of interest; plus there are tasks that are less inspiring – but just as important, such as ensuring I have the right coverage from my insurance policies.

As all of these activities compete for my scarcest resource – time, I have always found that the best way to get things done is to focus on one or two tasks maximum and not start anything else until they are complete.

Multi-Tasking Doesn’t Work

Picture the busy executive at work – sitting at his desk writing an email, talking on the phone, eating his lunch and reading through a report from accounts.  Although he gives the impression he is achieving a lot, the actual quality and impact of his work will be limited.

Our brains (both ladies and gents!) are just not designed to effectively process so many different tasks at once.

Perhaps the only place where multi-tasking works to some degree is in restaurant kitchens, where the chefs need to be spinning multiple plates in order to get the meals out to the customers.

But even here, there are systems and processes to help manage the workload – what does Gordon Ramsey say to struggling restaurants: reduce the number of options on your menu and use no more than three or four ingredients per dish!

Prioritise & Automate Instead

Prioritisation is the winning factor here.  All that you need to do is keep a list of your financial tasks and pick the two most important to focus your efforts on.

My list is a cheap pocket size notebook.  It normally lives in the rucksack I carry to work and tends to be used as a general to-do list, plus somewhere for me to scribble ideas on when I’m on the train.

The reason why I recommend you pick two tasks to focus on is that your progress on the primary task may be held up whilst you wait for a response from bank, insurance provider or whoever else it is you are dealing with.  If this happens, then you can move your focus to the second task that you have selected and vice-versa.

Automating recurring financial tasks also helps to save time in the long-run.  Most people have their bills automated through direct debits, so I think the best example of using automation is with investment.

Unless you are a committed and highly skilled stock picker, then passive investing in index funds (such as FTSE trackers) is the best way to go.  All you need to do is set up a monthly direct debit to transfer money into your fund and let the fund manager or index-tracking computer do the rest.  For more information on passive investing, it is worth looking at Monevator’s Passive Investing HQ.

Complete Existing Tasks Before Starting Something New

If a task is not going completely to plan, it is very tempting to start something new and this could lead to a build up of open tasks, leaving you feeling overwhelmed.

I have worked on large website projects where we have used a Kanban Board (pictured below) to ensure we only focused on a handful of tasks and didn’t just start on a new task if we were experiencing issues with one that was already open.

This technique is derived from the lean management techniques developed by Toyota and splits project tasks into different categories:

• Not started
• In progress
• In testing
• Complete

There are specific rules about the number of tasks that can be open at one time and as a task moves through development, the whole team can see it’s status.

I’m not suggesting you create your own Kanban Board (although I would have one at home if I had the space!), but just highlighting how important it is to keep open tasks to a minimum.

If you are really struggling to complete a task or something more important comes along, it might be better to re-prioritise and put the problem or de-prioritised task back on your list to be looked at again at a later date.

More For Less

So there you are – focus on one task at a time, get the job done and enjoy the most satisfying bit – crossing the task off the to-do list and moving onto your next exciting project!