‘Personal finance’ refers to how you manage your money and make financial plans for the future, and your financial health is influenced by all of your financial decisions and activities. Specific rules of thumb, such as “don’t buy a house that costs more than two-and-a-half years’ worth of income” or “always save at least 10 per cent of your income toward retirement,” are among the advice we often see in the media.
While many of these sayings are tried and true, it’s also vital to think about what we should be doing to enhance our financial health and habits in general.
Money management is a difficult topic to master. For many people, the subject is fraught with dread. Perhaps you’ve procrastinated on saving for retirement for far too long? Maybe you’re concerned about not having sufficient emergency funds? Whatever your financial woes may be, there’s no better time than now to get a handle on them, and it’s ideal to get the ball rolling on good financial habits as soon as possible. To help you get started, Wayne Audsley, one of our Directors and Chartered Financial Planner, has put together a list of his money management recommendations:
- Set out your financial priorities
Before budgeting, you must first establish your priorities. You won’t buy into your financial plan if you neglect this key phase.
To link your money goals with your money habits, you’ll need to focus on your long-term goals. Do you have credit card debt that make you feel sick to your stomach simply thinking about it? It’s possible that paying down that debt is your first priority.
Wayne explained: “Maybe you’re saving for a big event like a wedding or family holiday? Perhaps you’d like to start an emergency fund so you’re never stuck when something suddenly needs repairing or replacing? Or maybe you’re just looking ahead for retirement? Whatever your goal is, it’s a good idea to establish it early so that you know what your priorities are.”
2. Keep an eye on what you’re spending
In a world of Direct Debit, contactless, and Apple Pay, spending money has never been so convenient and quick.
This, of course, makes keeping track of how much you spend more difficult than ever, and there are certain risks associated with this.
To begin with, you could spend money you don’t have, leaving less money in your account to cover those important bills. Another risk is that you could become overdrawn, even if only by a few pounds, and face some nasty charges.
A recent study by Newcastle Building Society looked at the spending habits of 2,000 UK adults and discovered that we are better at guessing where our money goes than knowing exactly how much we pay.
They discovered that two-thirds of people can’t tell you how much money is in their bank account, and that many people have trouble keeping track of their regular spending, such as food shopping and commute costs.
“There are a few different ways you can track your spending. You could use an online budget planner or banking app. Or even just take cash if you know you’re going somewhere, then you can physically see how much you’ve spent and how much is left, without having to login online anywhere.
“Another great tip is to set up your Direct Debits and standing orders to go out on the same day. If you can arrange your bills to be paid a day or two after you get your salary, it should be easier to keep track of the money that’s left, and not accidentally be unable to cover your credit card or electricity bill.”
3. Put a plan together
This is where everything comes together. Look at your monthly income and compare it to how much you are currently spending each month. From here you can calculate how much you have to save, and how long for, in order to reach your goals.
Wayne said: “Say you’re a fitness fanatic and love working-out, and when you added up your monthly spending you realised that you spend a great deal of money on a gym membership, yoga classes, and new sporting gear in an average month.
“You won’t have to sacrifice that if it’s important to you. However, to meet whatever goal you’ve set — let’s say, an emergency fund, for example — you’ll have to make cuts elsewhere. This could mean doing your weekly shop at a cheaper supermarket, or sacrificing your weekly takeaway, but if you choose to cut spending on something you’ll miss, then you’ll never stick to your plan.”
You may find your own way to record your plan, but you can’t go wrong with a simple Excel spreadsheet.
4. Save often and early
Once you have collated your plan, it’s time to stick to it.
It’s easy to opt for popular, well-marketed savings accounts, but these may not meet your unique goals. With the right advice, you may often achieve more potential growth by looking past the hype.
Not only that, but with interest rates at record lows, cash savings will do little to increase your money in most circumstances, and this appears to be the case for the foreseeable future.
It is often worthwhile to look outside the box in order to achieve genuine growth.
“At Lairgate Financial, we can help in the selecting stocks and shares ISAs that suit your personal risk tolerance while also having the potential to grow.
“If you’re looking for a longer-term investment, it’s much better to start at a younger age. If you put money aside on a regular basis for, say, 18 or 21 years, any stock market ups and downs will be less of a worry.”
5. Make the most of your money
A word of caution for anyone considering going it alone: keep in mind that the human mind is not geared to think long term, and so will frequently prefer immediate gratification over waiting for higher rewards later.
“Getting professional advice is therefore critical to sense-check and safeguard your decision-making, and to ensure that you build your pot in the best possible way, so that it lasts as long as you need it to and that you can access any income you do decide to take out as tax-efficiently as possible when the time comes.
“With interest rates as low as they are now, you really need to think about where you’re saving your money so it may grow as much as possible.” Again, by getting the proper financial advice, we can ensure that you are getting the most out of your money and making the most of your savings potential.”
If you’re questioning your financial position and would like to arrange a free, no-obligation initial appointment to take a fresh look at your financial health, and your options for everything from your pensions to your investments and the insurances you have in place, email us or call (01482) 860700.
This blog is intended to provide readers with viewpoints, opinions and inspiration regarding options they might want to consider. It is not intended to be taken as advice and we strongly recommend seeking professional financial advice before taking any action.