Much like a house in need of a good spring clean, if you ignore your finances for too long you could find they’re in a state of disarray and need some TLC to bring them back to where you want them to be. With Spring just around the corner, now could be the right time to have a look at your finances and make sure they’re heading in the direction you want them to be.
But what’s the best way to tackle your finances? We’ve put together this step-by-step guide to help you take control of your money.
Sort out the clutter
The first place to start when getting your finances in shape is looking at where everything is. Where do you keep your important documents like your bank statements, insurance details, information about credit and debit cards, etc.? Are they neatly filed away or are they loose in a drawer somewhere? Maybe your digital files are spread across different devices and folders?
We’re all busy, so if careful organisation hasn’t been your priority so far, it’s understandable. But if you can’t easily locate your documents when you need them, it could be really difficult to keep track of your finances. So, if you really want to get on top of your finances, you should start at the bottom and begin the task of sorting through the chaos and finding a safe place to store your documents.
For physical papers, go through them and throw out anything that’s not important or no longer relevant. Remember to scrub any personal details from them as you do this. You might want to get a wallet folder so that you can separate them into different sections depending on the information they hold.
When it comes to digital files, you want to think about storing them somewhere that’s easily accessible for you while still being safe and secure. Whether it’s an external hard drive, folders on your desktop, or a secure cloud server it's up to you but make sure to do your research into which suits your needs.
Once you have your documents organised it’s time to look at your income and where it’s currently going.
Tidy up your budget
We’ve said it before and we’ll say it again, the key to making the most of your finances is deciding on a budget that works for you – and sticking to it!
You might shy away from the ‘B’ word because you associate it with having to give up spending money on lots of things that you enjoy but that’s not the case. When you start budgeting the trick is to find compromises that you’re happy to make, rather than just going cold turkey.
For example, let’s imagine that you’re saving up for a mortgage. Now, how long do you have to save that money? If you’re happy to dedicate, say, five years to your goal then you can afford to be a little looser with how much you’re putting away each month. On the other hand, if you want to meet your goal in the next two years, you’ll probably have to be stricter with your spending. But ultimately it will get you where you want to be, which is what matters.
Try writing down a list of all the monthly expenses you have for the things in life you can’t live without. This will include things like rent or mortgage payments, utilities like electricity and gas, and broadband. Once you’ve completed your list, you’ll know what your essential spending is each month and how much it typically costs. These expenses are necessary so your budget should be centred around them.
Sweep up your spending habits
Now that you know what your essential expenses are it’s time to see if there’s anything you spend money on regularly that you can cut back on. You might have some habitual spending habits that you can target, or you might be someone who tends to make impulsive purchases. If this is the case you’re not alone. According to a recent survey, 78.2% of Brits have succumbed to impulsive online shopping, with each person spending on average £32.69 on items they hadn’t planned on buying.
Not only do we Brits tend to spend money each month on impulse buying, but we also collectively waste about 25 billion pounds a year on subscriptions to services we don’t use. That boils down to roughly £39 a month! The good news is, when you’re aware of your spending habits, it can be easier to stop yourself from making unnecessary purchases.
Have a look at your budget and compare it with previous bank statements to work out where you might be making impulsive purchases or paying for a service or subscription that you don’t use. Once you have an idea of what these are, set yourself a goal to help cut back. It could be something as simple as reducing that spending by £10 a month to start with. As time goes on you can set yourself larger goals to reach.
Polish up your long-term goals
When was the last time you thought about your long-term financial goals? Have they changed much as your life has changed or are they the same? Maybe you’re not entirely sure what kind of goals you want to set for the future. When thinking about your financial future you should consider what you want to do in the next 5, 10, and 15 years.
For example, you might have plans to get married. If so, you’ll want to have a long-term goal in place to help pay for the kind of wedding you’re hoping for. Or maybe you want to buy a house, or start a family? Whatever it is you want to do, you should have clear and defined goals in place to help you achieve what you want. And remember to make sure that they’re realistic.
Check in with your retirement plan
We know that retirement may seem like a far-off thing right now but giving some thought to how much money you may need to retire in advance can help you make it a reality. You may already have some savings going towards a pension and retirement which is good, but you should still try to check in now and again to see if you’re on track. Your plan might need some readjusting depending on your circumstances.
When it comes to saving for your pension, the general rule of thumb is to put in as much as you possibly can. If you want a more solid idea of how much you should contribute each month, some advice says that you should take the age that you start your pension and halve it. You’ll then put this % of your salary (before tax) into your pension pot each year until you retire.
So, if you were to start your pension at age 25, you would pay 12.5% of your monthly salary towards it for the rest of your working life. If you were 35, that percentage would be 17.5%. Remember, some employers will contribute to your pension pot, so you only need to fund the remaining %.
Brush up on your financial protection
Looking at your financial future isn’t all about pensions and savings. It’s also about making sure you have a clear plan in place that can help to financially protect your loved ones if the worst should happen. Whether you’re single, in a relationship, or starting a family, it’s important to think about how your loved ones would manage if you were no longer there to provide for them.
If you’re concerned that your family would struggle if you were to unexpectedly pass away, then you may want to consider securing life insurance. With life insurance, you can leave a cash lump sum to your loved ones that can be used to help pay for household bills, outstanding debts and funeral expenses when you’re gone. It could also be used as a gift to help provide them with the opportunities you want them to have.
Take the next step
There’s nothing quite like the sense of relief and achievement when you finish up a good spring clean, and the same goes for tidying up your finances. When we’re in control of our incomings and outgoings, it can make it easier to make bigger savings and financially prepare for the future.
If you would like to explore your options when it comes to life insurance, we’re here to help. You can call us today to speak to one of our friendly UK-based team who will be happy to help you find the right protection for your needs.
