Getting your finances into shape can seem like hard work, especially if it isn’t something you’ve ever done before. But, just like going back to the gym after a long period of absence, the hardest part is committing.
So, let’s make 2020 the year you achieve financial fitness, shall we? Here are 20 things that you could do to take control of your finances.
Understand your incomings and outgoings
Before you can do anything about your finances, you first need to know where you stand. How much is paid in – salary, interest, pensions etc. – versus how much is paid out. You should be aiming to spend less money than you earn, as having regular expenses that exceed your income could put you in debt.
Plan your budget
Once you know where your money is coming from and where it is going, you could start to put a monthly budget together. A well-planned budget should earmark money for regular costs like your rent or mortgage, bills, insurance and subscriptions as well as giving you an allowance for things you enjoy such as the cinema, eating out or days out with the family. Consider setting some money aside for an emergency fund, to provide some additional security.
Involve your partner
If your household has more than one income, then including their income in a single household budget could give you much clearer understanding of where money is being spent. By having two of you committed to a budget, it is more likely that you’ll get some support in your budgeting efforts and have someone to keep your spending in check.
Save before spending
To quote Warren Buffet, “Do not save what is left after spending, but spend what is left after saving.” If you’re planning on saving some of your income, it could be a lot easier to put the money aside as soon as you get paid. Doing this could take away the temptation of end of the month spending sprees due to leftover money, and also it could give you more control over how much you save.
The fastest way to build up a savings pot is to contribute to it regularly. If you add £50 a month each month for a year you could end up with £600. Building how much you want to regularly save into your budget is a great way to make sure that you hit your financial targets.
Prioritise your spending
Chances are, you won’t be able to afford to do everything you want each month, but it’s important to make sure you’ve budgeted for the things you really want. By prioritising your spending, you can ensure that you always have money for date night or weekend breaks by sacrificing that morning coffee from the café or bringing lunch to work with you.
See if you can reduce your expenses
How much of your regular outgoing expenses do you really want or even need? With the rise in subscription services in the last couple of years, you may be surprised by just how much you’re paying out. Some of these you may not even be using anymore! Being ruthless and cutting expenses that you no longer need could save you a pretty penny.
Pay off your debts
Credit card bills, loans or other debts can be expensive, normally charging a rate much greater than the interest you’d get on your money. When prioritising your money, it’s generally considered good practice to pay off your debt as quickly as you can afford to. It might make more sense to use your savings to pay off your debt, as the cost of your debt is likely to be more than the interest you’ll receive on your savings.
Limit your credit card purchases
If you haven’t got a 0% credit card, the repayments can be quite expensive. While we did say about to use your savings to pay off these debts, try to see if you could limit the purchases you make on credit by saving up for big purchases or searching for a cheaper alternative if possible.
Think about your pension
Are you already contributing towards a pension? If not, it’s worth thinking about because the sooner you start the more potential you have thanks to compounding. Also, with the government’s 25% top up by contributing £80 to your pension you’ll get £20 from the government. Think of your pension as a long-term saving plan towards your golden years, each payment you make could help you have a comfortable and enjoyable retirement.
Make the most of your bank
Many banks are taking advantage of technology to provide a better service to their customers. This includes things like notifications on purchases or incomes, identifying your spending habits, attributing costs to categories and removing account fees. If your bank has them, why not try out some of these features and see if it has an impact on how you manage your money?
Keep up with inflation
Savings are great, but if they aren’t keeping up with the rate of inflation then the value of your money could be going down. How does that work? Well, let’s say, for example, that you have £1,000 sitting in a savings account that’s getting 0.5%, but the rate of inflation is 1.5% - while you are earning 0.5% on your savings, everything else is increasing in price by an additional 1%. This means that your £1,000 won’t be able to buy you as much because everything else is now more expensive.
One way to try and beat the rate of inflation is by investing your money in shares. While your returns aren’t guaranteed, over the long-term, your money has more potential to achieve larger returns than it would sitting in a savings account. With investment platforms, like Wealthify, investing is simple – you choose a level of risk and our experts will manage your portfolio for you. There’s even a choice of ethical investments which allow you to invest your money in line with your values.
Plan for the long term
When creating a budget, don’t forget to think long term. Knowing how much you spend every month is great, but it is important to have a financial goal for a year, five years or even 25 years. This will give your savings something to aim for and, if you chose to invest, time for your investments to make a return.
Use the right tools
Tools like Wealthify can help you access investments in an easy, low-cost way to give your money more potential. But it’s always important to check and see how much you pay for your services and if the tool offers everything you want. In terms of budgeting, there are hundreds of apps available, but what works for you is likely to come down to personal preference so it may be a bit of trial and error.
Check regularly, but not too regularly
When you start testing out your new budget it’s worth dipping in every few weeks to make sure that it’s on track. But don’t check too regularly, especially on your investments! Regularly checking your investment plan may lead to a short-term focus which takes a much more negative approach to recent losses.
Review and adapt
Don’t worry if your budget doesn’t work the first time, it happens. Maybe you had a more expensive month than usual or perhaps you missed something out of your budget? You should learn why your budget didn’t work and make changes to include any extra costs going forward.
Ask for help
Financial advisors exist for a reason and sometimes you may need a third-party to make sense of your finances. A good financial advisor should be able to tell you what you need to do differently, show you how much you can save and even provide better guidance for your budget.
Stay on target
It can be easy to get distracted or disinterested in your finances, especially when things start heading in the right direction. When this happens, it’s easy to slip back into your old ways of doing things and miss some of your financial targets. Checking on your savings or investments every few months to ensure you’re on track could help
Things happen. Your boiler may pack in or your car breaks down which throws your monthly budget off. Part of your budget should allow for flexibility to help with exactly this sort of scenario. Don’t be afraid to dip into your savings if you need to, just make sure to readjust your targets or re-plan your budget if necessary.
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.