Managing your finances doesn’t have to be complex, and there are a number of reasons on why you would want to do this to begin with. Reasons include: saving for a mortgage, buying your dream car, going on that holiday you’ve always planned, planning for retirement or even just having assurance that the funds are there should you run into an emergency.
The earlier you start the better, and it’s never too late. Or as the saying goes ‘there’s no time like the present’. This guide will help you build healthy money habits and get you one step closer to reaching your financial goals. One easy way to increase your income is by finding clever ways to reduce your expenditure, for example you could compare energy and a whole range of other products using a price comparison website such as Utility Saving Expert. They could help you save hundreds of pounds year in year out.
Know where to prioritise
Before you even begin, you need to clearly understand what your priorities are. If you’re unable to prioritise, this could become excruciatingly difficult for some.
Align your goals with matters to you most in life. Are you saving for something in the future, or do you want to finally rid yourself of personal loans and credit card debt? Everyone will have their own priorities based on their current circumstances.
By aligning your priorities with the most important aspects of your life, you can start to see what you really value. This could be from taking care of your personal health, international travel, or simply just entertainment. Once you have this knowledge, you can reduce or even remove completely those categories which are not essential to your lifestyle.
Understand your monthly income
To manage your money, you will need to know exactly how much your monthly household income is. If you’re a salaried employee, this is easier to calculate. If you’re self-employed or are a business owner, you will have to estimate this based on figures from previous financial years.
If you receive any income from other sources such as investments, pensions or benefits, add this to the above figures. A spreadsheet is simple to create and can easily help you keep track of things.
Understand what your money is being spent on
To build a complete and true financial picture, you’ll have to carefully think about your spending habits. To help you with this, you’ll need to gather all of your credit card and bank statements. These will help account for most of your expenses. However, if you receive any income through cash, or digital platforms such as PayPal or Venmo, you’ll need to include these too.
You can use the spreadsheet that you created earlier for your income, or go back to basics with pen and paper. We recommend the former method as you can easily update it and it will help you do the calculations automatically with little room for error.
It may be useful to categorise your expenses into things that are essential and non-essential. Examples include household bills, travel costs and money towards repaying debt. This will then enable you to quickly get a snapshot of where your money is really going. You may be surprised by how much you’re spending each month on eating out.
Factor in emergencies
OK, so you now fully understand what your monthly income and expenditure looks like. You’ll now need to set aside an amount for life’s unexpected. Having an emergency fund can help you in times when you need it most. Many publications advise that you should have at least six months’ worth of savings to help you through the ‘rainy days’.
You or your partner may lose your job, your car may experience a serious breakdown, or you may have to pay for private medical treatment which isn’t covered by the NHS. There’s a number of things that could financially affect you at different times of your life. An emergency fund will give you some reassurance that you’re able to get through this challenge. To build up this pot, you’ll have to slowly add to it and make sure you only access this if it is an absolute emergency. Avoid being tempted to make large purchases that aren’t absolutely essential as these can wait.
Save as early as possible
Regardless of what your current financial goals look like. The sooner you start to save, the less time it will take to get there. Many people look for banks that offer specific savings accounts, or private pensions that they can start investing money into. Even if you’re more than 20 years away from retirement, you still need to think about long term saving goals. The great thing about saving is there is no set rule on how much you should be putting away. More is better, but even as little as £50 per month can go a long way if you stay committed over a number of years.
To summarise, the best way to manage your money is to understand what you earn and where your spending habits lie. You then need to prioritise what’s important to you after paying for all the unavoidable essentials. Creating a plan and adhering to it strictly will be the difference between success and failure. You may come across life’s unexpected road bumps, but having an emergency fund ready will help you deal with this. We hope you have found these tips useful and wish you every success in realising your financial goals.
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