The cost of cancelling (article for The Sun)

It's tough out there, it really is. It's not appropriate for me to bang on about pension contributions whilst families struggle with food and energy bills. What I will say is that now could be a good time to reassess priorities. Our maximalist consumer culture often results in 'lifestyle creep' and huge financial wastage. At the same time most people don't have any sort of long term financial plan. So as well as making some short-term tactical changes, I'd urge people to give some thought to what they really want out of life and start planning their finances accordingly.

At times like these, many people will be thinking of cancelling their protection policies such as Life Insurance or Income Protection - don't. The older you are, the higher the premiums are. Therefore trying to put in place a new policy in the future will cost you even more. If you want to put in place a new policy further down the line, and your health has changed, you may get declined for cover, or the premiums could be even higher. You cannot plan if and when you will be ill or die. The policy will be invaluable to you and your family if it is needed.

Insurance is always going to be top of this list. It can seem like a waste of money when things are tight but it is important to remember why you took it out in the first place. Things like life insurance and cover against illness are lifelines when things go seriously wrong so, whilst it is never the most fun, it is better to make changes in lifestyle if possible so as to keep these policies running.

Whilst it can be easy to look at a list of direct debits and cancel them, there are a few that can have quite a sting in the tail. Personal insurances, such as life insurance, critical illness cover or income protection are one such area. They do not have any type of penalty for cancelling them, so it feels like an easy and cheap saving. However, it could be a very expensive saving. The obvious one is if a claim situation arises after you've cancelled the plan, but often overlooked is the cost of reinstating plans when you are back in a better place. This is because these types of insurances are very price sensitive to your age at the time you take them out, so the £30 per month plan you cancel now that you took out in your 30s, could cost you £45 per month when you look to take it out again, for no other reason than you're 10 years older at the time of the new application. Also, that's assuming there is no change to your health that could mean difficulties in getting covered again.

Deciding how to spend extra money is easy, deciding how to spend less is not. Our choices around personal finance are often rooted in emotion rather than logic and our short-term actions often lead to long-term pain. When reviewing household finances in an effort to reduce spending, it can be useful to seperate transactions into three categories: essential, leisure and luxury. Utility bills, loan repayments, taxes, insurances and in most cases pension contributions should all come under the 'essential' category. It can be tempting to cut life insurance, income protection and pension payments but these are all protecting your future self from financial disaster. Start by looking at what luxuries can be scaled back or stopped altogether, even on a temporary basis. Then consider if some leisure spending can be changed. Money can nearly always be saved by stopping undervalued subscriptions, mixing up some weekly shopping choices and looking around for better deals. It's important to retain fun and leisure, but focus on how you truly value your time, rather than being drawn into tempting offers. Try to stay focused on the longer term, consider the bigger picture and don't deny your future self by making costly cancellations in the short term.

When things start to get tight financially, everyone looks at what they can cut from the budget. In the coming months, for many cutting back will not be an option, it will be something they will be forced to do as essential bills rise dramatically. So what should you consider when cutting back? Firstly it is always tempting to cut bills for services, like TV, mobile phone and other subscription services. However before you do, check to see if you are still in a contracted period and if so can you cancel the agreement early? Where you can you may find you will have to pay a hefty early termination charge. Failure to correctly end your service could result in expensive debt collection on what otherwise may be a relatively small bill. Insurance policies can be tempting to cut as they only have a value when claimed. However rather than stopping them think about speaking to a broker or shopping around as you may be able to maintain your cover whilst at the same time saving on the monthly/annual premium. Only when you have the cheaper cover in place should you cancel the existing policy. Regarding mortgage and credit payments, it can be very tempting to take a mortgage or credit payment holiday in an effort to save money, but stopping payment only increases the amount you owe to the bank and ultimately means you will pay back more. The interest you would have been repaying is added to the amount you owe and that then starts to incur interest on it as well. This really should be a last resort as it may help with your immediate cash flow but could cause greater issues in the future for your finances, especially as interest rates are likely to continue to go up.