5 steps to getting your finances in shape
We cover five simple steps to ensure you never spend more money than you have!
This week is financial planning week, an initiative set up by the Institute of Financial Planning aimed at encouraging us all to engage fully with our finances.
So what should you be doing in order to ensure that your finances are looking ship shape, not just for today but in the future as well?
Keeping on top of your budgets
A big part of financial planning is keeping on top of how much money is coming in, and how much is going out (as well as where it’s going of course!). A survey undertaken by the Institute of Financial Planning as part of planning week found that almost half of respondents (47%) struggle to make their salary last until the next payday.
Clearly we all need to employ a bit of budgeting.
There are a few techniques you can employ with this. You can do what my flatmates did at University, which is to tally it all up in your head, and then when the sums stop adding up to simply ignore your mounting debt. It's not a great tactic in truth. Or you can go the old tried and tested route of a pen and paper and a bit of addition and subtraction. Sure it’s boring, but it’s very effective.
However, if you really want to keep on top of your money, the lovemoney.com online banking tool is a bit special.
You’ll get all of the information on your various bank accounts in a single place, as well as charts detailing exactly where your money is being spent (and therefore exactly where you can cut down your spending!). For more on how online banking can help you get your budgeting habits up to scratch, have a read of our site blog. And for further budgeting tips, read How to budget in five simple steps.
Your stage of life
Your financial plans change depending on what stage of life you’re at.
For example, if you’re a teenager, you’ll want to be putting money aside towards a deposit or, more likely, to cover your tuition fees. As you get older, you’re more likely to worry about your money going towards your pension provision.
So you’ll need to work out for yourself precisely what you want to be putting your money towards – your goals if you like – and work out how you’re going to get there. To take myself as an example - I’ve got a baby on the way, so my own planning is likely to focus on ensuring there is money set aside for childcare (as well putting a few quid away each month to help him if he opts to go to University).
Rachel Robson highlights five easy ways to master the art of budgeting.
It’s worth having a look at the different DIY guides the Institute of Financial Planning has put together for the different age groups, to give you an idea of the questions you should be asking yourself. Once you’ve got your goals worked out, then you can really add some focus to your financial planning.
Ditching your debt
Of course, for most of us the goal will something positive – to have enough money to buy a house, or a new car, or pay for that holiday of a lifetime. You want to get something out of the money you are saving.
And that means not having to put it towards paying off debt, be it credit cards, loans or even an overdraft.
Thankfully, with a bit of preparation, you can ditch your debt relatively pain-free. If you’ve got an overdraft that needs paying off, be sure to follow the tips in Three ways to get rid of your overdraft for good, while if your borrowing has dropped you into the red, you can get a tremendous round-up of the balance transfer cards that will help you kill your debt in The 16 month 0% credit card showdown!
A safety net
However, there is always the potential for a sudden, unexpected cost to upset all of your plans. That’s why, no matter what stage of life you’re at, it’s important to establish a savings safety net. So even if the boiler packs up or the engine falls out of your car, you know you’ll be able to cover the cost without upsetting progress towards your existing financial goals.
Related blog post
- The Consumer Credit Counselling Service writes:
Find out how being loyal to your bank could make you worse off.Read this post
A good way to build up that safety net initially is through the use of a regular saver account. As the name suggests, this involves you putting aside a set sum (which can be quite small) each month, and in return you get a better than average interest rate. The current market leader is pretty fantastic in my view – be sure to read Earn 8% on your savings!
However, a regular saver can only get you so far. Whether you’re getting together a savings safety net, or saving for something specific like a deposit, it’s important to build that stack of cash as quickly as possible, and that means getting the best possible rate of interest.
So sidestep the taxman by making the most of your ISA allowance. You won’t pay any tax on the interest earned in your ISA, and can save up to £10,200 a year in an ISA (though only £5,100 in cash). For a great round-up of the best ISAs around, make sure you check out Don’t miss the new market-leading savings account!
Using a professional
While all of us can have a decent stab at planning out our finances for ourselves, some feel a lot happier making use of a professional adviser. Perhaps they can’t quite get their head around how a certain financial product works, or need a bit of help grasping the tax implications of possible investments.
A professional adviser will sit down with you, work out your financial goals in life and how to get there, which will likely include recommending certain financial products. If you feel the need to utilise some advice, head over to the Institute of Financial Planning website where you can search for certified financial planners in your area.