Most people will sleepwalk into their financial life while they’re busy focusing on something else.
By the age of 22, they’ve instinctively made millions of decisions about spending, hundreds about borrowing, a couple regarding savings and at least one pension decision, which may have serious ramifications for the future.
If we can start making these choices consciously and deliberately earlier, we may benefit from better outcomes.
Step 1: See where you stand
When you’re finally ready to take control of your financial life, your first step will be to open your eyes and see what you’ve sleepwalked into.
Don’t panic if it’s not an ideal position: you don’t have to feel guilty about any problems you’ve built up or bad habits you’ve adopted.
The important thing is that you are aware of these issues now, and you are committed to putting them right.
Step 2: Budget
Once you have an idea of your debt, savings and pension payments, you need to assess whether your position is getting any better or worse – and why.
The easiest way to do this is to see what’s coming in and being paid out each month.
You’ll need to check your statements for monthly bills and regular expenses, as well as revisit key spending periods such as holidays and Christmas.
It’s also worth keeping a spending diary, which will reveal forgotten costs like top-up shops and drinks after work.
Step 3: Cut costs
If things are getting worse, look at each area of spending, and see where you can cut costs.
There may be straightforward things you can do such as switching utilities to a cheaper provider, moving debt to a low (or no) interest rate, cancelling unused direct debits, or buying cheaper brands.
Of course, there may be harder decisions to make, such as whether you need to cut back on the things you love, potentially including your social life or holidays.
There may also be difficult lifestyle choices to face such as living or commuting arrangements.
The aim is to break even, and then free up a lump sum each month that you can use to get yourself into a better financial position.
Step 4: Deal with dangerous debt
If you’re lucky enough to have a monthly lump sum available, what you do with this depends on your current position.
If you have expensive debts, these should be your priority.
That doesn’t mean paying down a mortgage or paying off more of your student loans than you have to as the focus is on expensive debt such as credit cards, overdrafts and payday loans.
You should set up a direct debit each month to clear any hefty debts as quickly as you can, without putting yourself in financial safety in jeopardy.
Step 5: Take cover
While tackling any debts, you need to consider basic protection.
You should have vital insurance in place to cover emergencies, such as buildings and home contents insurance. If you have children or a mortgage, you should consider life insurance.
It’s also worth looking closely at critical illness cover and income protection, which will pay out if you’re ill.
These may be a step too far for your budget but can be incredibly valuable if the unexpected happens.
It’s always worth using comparison sites and checking what’s available as the cost and extent of any cover can vary dramatically.
Step 6: Start saving
Once debts are paid down and protection is secured, you need to start building an emergency savings fund in an easy access account, so if life takes an unexpected turn, it doesn’t send you into debt again.
It’s worth shopping around for a decent interest rate as you can earn up to 1.5% (at the time of writing).
If you set up a direct debit to pay into this account automatically each month, any money can leave your account straight after payday, so you don’t get a chance to spend it first.
The aim is to build up three to six months’ worth of expenses in the account, which you’ll be able to use if you run into difficulties.
This isn’t going to happen overnight, so don’t worry that this is a tough goal. Each time you get a pay rise, or you cut costs elsewhere, you can boost your monthly savings.
Step 7: Pay into a pension
At the same time as building your emergency fund, you should pay into a workplace pension.
The good news is that for many people, this will have started automatically at the age of 22 – if they were employed, earning enough (over £10,000 a year), and didn’t choose to opt out.
If you’re not contributing to a pension, you should opt into it now.
Anything you do now is better than doing nothing, but if you can stretch to slightly higher monthly payments, it’s well worth doing so, especially if your employer offers to match additional payments.
If you are at the start of your career, this is unlikely to feel like a major priority, but the process of compounding through the decades means the money you pay in early will work the hardest for you.
Step 8: Plan for the future
With these things in place, you will then be in a position to save for the future.
You'll probably have a number of goals you’re trying to meet such as saving for short term things like Christmas or a holiday. Or you may be saving to buying a home of your own or to fund home improvements.
Any money you’ll need over the next five years or so should be in cash.
Yet a mistake a lot of people make is lumping it all together in an easy access savings account (often with their existing bank), which means the money may earn less than 1% in interest.
Step 9: Pick the right place for your money
If you have a year until you need the cash, a regular savings account is a good idea, where you can earn up to 5% (at the time of writing) on your savings.
Once the year is over, if you have a year or more until you need the money, you can switch it into a fixed term account, for the most suitable period, in return for a higher interest rate.
You can also redirect monthly savings into a new regular savings account.
If you are saving to buy your first home, are aged 18-39, and have at least a year until you plan to buy, a Lifetime ISA makes a great deal of sense.
You can pay in up to £4,000 a year, and the government will top it up by up to £1,000, which is a rewarding way to save for a first property.
You can choose between a cash LISA or a Stocks and Shares LISA, with the decision depending to a large extent on the time horizon you’re saving over.
Regardless of the tax wrapper used, if you are putting money away for five to 10 years or more, it’s worth considering whether stock market investments will meet your needs.
In the short term, there may be ups and downs, which you need to be comfortable with.
But if you’re prepared to hold investments for the long term, there should be an opportunity to ride this out, and take advantage of long-term growth.
Step 10: This isn’t ‘once and done’
Once you have set all these things up, you’ll need to revisit your plans at least once a year to check you’re still on track to meet your goals.
There is some leg work involved, and it’s certainly more taxing than sleepwalking into the future.
But it’s also likely to mean you’re more likely to achieve your financial dreams, rather than waking up to a nightmare in the future.