Making the decision to overhaul your finances is a little bit like deciding to get fit – the sooner you start the better off you will be! Here are our top 10 tips to help get you started:
1. Create a Financial Calendar
Set reminders to save for important events. We all know there are times of the year when the purse runs low, so plan for it. Examples include; paying a tax bill, car MOT, Birthdays and Christmas. Make sure you have put money aside to cover these events that you know recur on an annual basis.
This should be a starting point for every other goal in life. Do you spend more than you earn? Major overspending can lead to debts spiralling and severe problems. Once you know what you are spending you can start to prioritise what you do with your money to enable you to stick within your means. There are some great budgeting tools and apps available for free, or even traditional paper & pen is a good starting point. List all sources of income, then all outgoings. It helps to categorise, for example Household Bills, Car, Health. Also remembering to include the items you have already established from drawing up your financial calendar, as these are often missed when looking at a normal weekly or monthly budget. In an ideal world the result should be a positive one, you can then work out how you can enjoy the remainder. However, spending more than you earn can lead to a downward spiral. In a nutshell it means you can’t afford your lifestyle and unless you take steps to change things it can over time affect your family, home, mental health and relationships.
If your budget reveals you are overspending, revert back to cash. Payments through electronic transactions has increased year on year, although do you know how much you spend on your debit card? All too many of us pay for goods with our cards without taking stock of how much we are actually spending. A great trick to get this under control is to revert back to cash & watch your spending change. Suddenly with the cash in your hand, what you spend is reality and has a big impact on what goes into that shopping basket!
4. Know the difference between ‘luxury’ and ‘necessities’
This may sound simple, however we all have different views as to what is a luxury. For some people that £3 coffee on the way to work is a necessity, but saving £3 a day adds up to £1092 a year! Is a bought lunch a luxury or can you make it at home for less?
5. Emergency fund
An emergency fund is an account used to set aside funds needed in the event of a personal financial dilemma, such as a loss of a job, debilitating illness or a major expense. A good rule of thumb is to have 3 months essential outgoings available on an instant access savings account. You want to get your emergency fund set up as soon as possible, but like with all savings its best to keep to what you can afford and make sure you save regularly. Work out how much you need to put aside and set up a regular standing order for the right amount.
6. Repay your debts
Target any debts with the highest interest rate shown on your monthly statement or loan agreement first. Check that you wont be charged any penalty or default charges for overpaying, then pay off as much as you can afford without breaking the terms of other credit agreements you may have. Once you’ve cleared your most expensive debt, move on to overpaying on your next most expensive one.
7. Review your mortgage
Check you have the best possible deal, as this could literally save you hundreds of pounds a week. If affordable, start to overpay your mortgage, thus reducing the term. You will be suprised at the difference just a small overpayment can make!
8. Insure yourself!
Home, car, even pet insurance – yourself? All too often we forget ourselves. You and your wages are your most important asset. Don’t forget this and make sure you are insured against ill health or death. If you already have this cover, review it! Many of us take out these covers with a mortgage then forget about them, and in many cases circumstances change – you may have moved jobs, had children, divorced, so actually your level of cover may not be at the right level anymore.
9. Employer perks
Many bigger companies offer valuable staff benefits, such as pensions, savings schemes and staff discounts. Find out what is available in your company, you can often make significant tax savings!
10. Start a pension or increase your contributions
It’s never too early to start saving for your retirement. Many people in the UK either aren’t saving at all for their retirement or they aren’t saving nearly enough to give them the standard of living they hope for when they retire. Did you know the maximum basic state pension is far below what most people say they hope to retire on?