Taking control of your finances is no easy task. Just think about it. Where do you learn about money management? It’s not really taught in school, and parents don’t always have the time or confidence to teach their kids about personal finances.
This lack of financial education has left many people clueless about how to manage their money, and yet, if you want to live your life on your own terms, then it’s important to claim back power over your finances.
But where do you even start? And how do you even get your finances in order? Here are some nifty tips that could help you get ahead financially.
Get paid what you’re worth
The first thing you could do to take control of your finances is to make sure you’re being paid what you’re worth. So, start by asking yourself this simple question: ‘Am I being paid enough?’.
An easy way to check is by looking at job adverts in your field and region and see how much they offer – this should give you a rough idea of where you stand. And if you find out you’ve been underpaid, then it could be worth asking for a pay rise.
Unfortunately, people are often uncomfortable with the idea of asking for more money – especially women. According to a YouGov survey from 2022, 46% only 33% of women said they'd asked for a pay rise at work.1 And although it can be an awkward subject to bring up, most of the time, the only way to get what you deserve is by asking for it. Plus, you don't know what could happen until you try.
Spend less than you earn
It’s often assumed that you need to earn a lot of money to be financially successful. But that’s not entirely true. Although it helps to have plenty in the bank, if you spend most of it, chances are that your finances aren’t really in good shape.
Taking control of your finances isn’t just about how much money you make, it’s first and foremost about how much you manage to keep. So, if you’re serious about getting ahead financially, it could pay off to review your spending habits and drop any that are hurting your financial health.
For instance, if you tend to buy on impulse, why not create rules to help control your temptation? You could either limit yourself to one item a month or decide to wait a week before making any purchase that wasn’t initially planned.
Set financial goals
If you want to be financially successful, it’s a good idea to set some financial goals for the near and distant future. Otherwise, how will you measure your success? How will you know when you’ve made it?
Success is personal, and it depends on what your aims are. So, it’s important to think about what you want to achieve.
Now, one thing you might want to keep in mind is not all goals are good goals. If you want to increase your chances of success, then try to set goals that are specific and achievable.
For example, instead of saying ‘I’m going to save money so I can go on holiday’, try ‘I will save £100 at the start of every month so that I can go on holiday next year’. Once you’ve set your goals, you may want to track your progress – that way you’ll know if you’re doing enough to turn your dreams into reality. And if you’re behind, all you’ll need to do is adjust your goals accordingly.
In the financial world, we distinguish between two types of goals – short-term and long-term. A short-term goal is something you intend to achieve in less than five years. Here we’re talking about saving for a wedding or a holiday.
A long-term goal typically takes longer and requires more planning and effort. For instance, organising a trip around the world or saving for retirement are both long-term goals. So, when setting your financial goals, make sure you think about the timeframe too as it could help you plan and refined your saving strategy.
Create a budget and stick to it
A good way to get your finances in shape is to draw up a detailed budget where your different expenses are listed, and There’s no right or wrong way to do this. Some people prefer to do it all by themselves using an Excel spreadsheet, but others will favour budgeting apps – it’s completely up to you.
Whatever method you choose, the key to creating a good budget is to have a clear summary of all your outgoings, including mortgage/rent, bills, and subscriptions. But why stop there? You could take the process further and add an estimate of how much you usually spend on groceries and leisure (e.g. pub, cinema, short getaways).
Try to include as much as you can, that way you’ll have a better idea of how you’re doing with your finances. And don’t forget your savings accounts and investment plans, if you have any. Including them in your budget could help you keep up with good saving habits.
Once you’ve listed everything, have a look at what’s left. Are you happy with it? If not, it could be wise to make some changes to your budget and see where you could cut your spending. A budget doesn’t need to be set in stone. It’s fine if you’ve got to make adjustments, you’ll eventually get to the point you want.
As soon as you’re happy with your budget, make sure you stick to it, otherwise, you may not see any improvements.
Consider building up your savings
If you want to achieve financial success, consider having some savings aside.
Why, you ask? Well, say your washing machine breaks and you have no savings and no insurance. How will you pay to get it fixed? With an emergency fund, it becomes easier to deal with an unexpected situation.
But saving isn’t just designed to cover unplanned expenses, it can also help fund short-term projects, whether it’s buying a new car or going abroad on holiday. And the good thing is that you don’t need to save large lump sums to reach your goals. Saving little and often can also be a good way to build up a nest egg for emergencies and the near future.
In addition to saving, it could be a good idea to consider investing, especially if you have long-term goals you want to achieve.
Although investing is relatively riskier than saving, it can deliver higher returns over the long-term – this is because your returns aren’t tied to any fixed interest rates. Unless the interest rate you're getting on your cash savings is higher than the rate of inflation, then your money will be losing value over time. And inflation in the UK hit a 40-year high in 2022.
In other words: there’s a risk you could end up with less than you initially invested, but there’s also a chance you could enjoy higher returns than you’d get from cash savings.
And that’s not all! If you invest for the long-term (for example, at least 5 years), the better your returns could be as you'll give your investments more time to recover from market dips that are normal to experience along the way.
And by staying invested over a number of years, your money will have more time to potentially grow and benefit from the power of compounding, which is when your profits (including interests and dividends) start generating further profits as you reinvest them. Over time, your money could quickly add up and snowball.
One way to take advantage of compounding is to invest regularly for a number of years – and you don’t have to pay in large amounts of money either. Say you invest £50 a month and stick with your investment for 20 years. You could potentially end up with £17,2952. Now, if you extend your journey by 10 years, you could get about £32,6033. See, investing isn’t just about how much you can afford to put in, it’s also about how long you’re willing to commit for.
Think about tax efficiency
If you’re saving or investing, be careful not to ignore tax as it could have a significant impact on how much you get at the end. The more tax you’ve got to pay, the smaller your pot will be, so as a saver or investor, it’s important to keep tax to a minimum. Luckily, there are ways that can help you do just that.
In 1999, the UK government launched Individual Savings Accounts (ISAs) to encourage people to prepare for their financial future. The good thing with ISAs is that they let you save or invest in a tax -friendly way. This means you get to put your money to work and you can keep all of your profits, minus fees and charges.
The two main types of ISAs are Cash ISAs and Stocks and Shares ISAs, and each of them does exactly what it says on the tin. With a Cash ISA, you can save money without having to pay any tax on the interest you receive. And with a Stocks and Shares ISA, your money will be invested, and you won’t need to pay income or capital gains tax on your returns – but remember your tax treatment will depend on your personal circumstances and may be subject to change in the future.
Now, ISAs come with many rules, and the most important one is that you can’t put more than £20,000 in your account in one tax year. This is your annual ISA allowance for the current tax year, and you’ve got until midnight on the 5th April to use it – otherwise you will lose it forever.
So, try and consider using your current ISA allowance if you are in a position to do so) as it could help bring you a step close to your financial goals.
Think about your later life
Often when we talk about financial success, people think about the present or near future – they rarely think about the long-term. But to really get ahead financially, you’ll need to consider your later life.
You may be young right now and so retirement may not be a priority. That’s absolutely fine, after all, you may have other financial matters to deal with. But it could pay off to think about your later life sooner rather than later. And the truth is that you don’t even have to make big decisions yet.
You could just make sure you’re on top of your national insurance contributions for your state pension, and check how much you’ve got saved in your workplace pensions. Then as you get older, and your financial situation improves, you could increase your workplace pension contributions, or you could also consider other options to help you take control of your retirement.
If you want to find out more about the differences between the state pension and your workplace pension, then check out our handy guide to the various types of pensions in the UK.
One of these options is to open a personal pension, also known as SIPP (Self-Invested Personal Pension). What is a personal pension, you ask? Well, it’s a type of pension where you can choose how much you want to contribute and how often you do so.
But it doesn’t stop there! Every time you pay in your personal pension, you’ll receive some tax relief on your deposit. If you’re a basic rate taxpayer, you’ll typically get 20% tax relief from the government, which means for every £800 you put, an extra £200 will be added to your pot - this is to compensate for the income tax you’ve already paid.
Now, if you do the calculation, you’ll probably notice that £200 is 25% of £800, so for every contribution you make, you’ll enjoy a 25% top-up. Just like ISAs, personal pensions come with some rules. For instance, the amount you’ll get tax relief on is limited to £40,000, or the totality of your earnings (whichever is lower) – this is your pension annual allowance and it includes contributions from you, your employer, and the government. Also, everything you put in is locked in until your 55th birthday, meaning you’ll need to be comfortable leaving your money alone for some years.
Opening a personal pension isn’t as daunting as it sounds. With robo-investing platforms, like Wealthify, you can take control of your later life with just a few clicks. Simply choose the investment style that suits your needs and select how much you want to invest - you can start with as little as £50. Then, our team of experts will do the investing for you.
They’ll pick the right mix of investments and manage your Plan on an ongoing basis. But that’s not the end of the story. After your Wealthify Pension is built, you’ll be able to check how your money is performing on your interactive dashboard at anytime, anywhere.
Personal Pension A simple way to save for your long term goals. Pay in as often as you want and get an instant 25% tax relief top up from the government.
Capital at risk Invest now
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Past performance is not a reliable indicator of future results.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
2: This is the projected value for a Confident Plan (Medium Risk Plan) with an Original theme. This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £13,269. If markets perform better, your return could be £22,731. Values correct as of 06/01/23.
3: This is the projected value for a Confident Plan (Medium Risk Plan) with an Original theme. This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £22,944. If markets perform better, your return could be £49,818. Values correct as of 06/01/23.