The first quarter of the year is the perfect time to take stock of your finances and plan how to get them and keep them on track. Looking at your finances can be a daunting and, sometimes, terrifying task. However, here are four steps to help you kickstart your finances this year, and help make money matters less of a burden in the future:
1. Set financial goals
Setting financial goals is a key step to kickstarting your finances in the new year as they can help you to stay organized and motivated to reach them.
So, decide what you want to achieve financially this year. Do you simply want to spend less than you earn, reduce debt or save for something special? Whatever your financial goals are, create a plan for how you will reach them and work out the smaller things you can do each day to get there.
For example, you may usually buy a coffee on the way to work each day, by committing to taking one with you from home instead (a small thing), the money you save each day will help you achieve your goals.
Few of us like having a seismic shift in our day-to-day life – we are, after all, creatures of habit – however, a lot of small changes in our day-to-day spending can soon add up – as will the money we save.
It’s important to prioritise your financial goals. Set deadlines and targets but also be realistic so that you stay motivated. If you want to have €1,000 in savings by the end of the year, that’s great, but by breaking it down into smaller interim targets: €50, €100, €250, €500, for example, you will find it easier to keep recognise your progress and celebrate your success. If your circumstances change, then make changes as you go, but always focus on the progress you have made, rather than what is less to do. This will help you avoid getting discouraged that you’re not making progress when you actually are! Always remember that achieving what you want in life is usually more of a marathon than a sprint. So keep going, celebrate your wins and don’t give up if you sometimes go off track!
2. Review your expenses
Our spending habits often creep up on us. Whether it is that we always tend to shop at the same stores, stay loyal to certain companies or continue to pay for things we don’t use, such as subscriptions.
January is the perfect time to take stock and see where savings can be made and identify where money is being spent that we don’t need to spend. So, look at your bank statement from the last year and work out where your money goes each month and those areas you could make savings.
By shopping around on things such as insurance, mobile phone providers, broadband and utilities, you can often get a better rate either with your existing provider, or someone else. Also, check out online comparison sites to see what you could save by spending your money elsewhere. It’s only by knowing how and where we spend our money that we can start to take control of our spending, so do a deep dive into your finances today and start being the boss of your spending!
3. Make a budget
To manage your money you need a budget. This needn’t be anything sophisticated or complex - you can do a budget on a piece of paper, but there are lots of websites and mobile phone apps available too! However, it’s only by knowing what money you have coming in and going out each month that you can look to reduce your spending, clear debt, and save money to reach your money goals.
A great way to start budgeting is to write down all of your expected income (salary, pension, bonuses, social security benefits, etc) and all of your anticipated expenses. Once you've got these written down then you can review them together and work out what you need to do (cut or eliminate spending, look to boost your income through a part-time job or career change, for example) to reach your financial goals.
There will be some costs that you probably can’t cut much – your essential spending on housing, utilities, childcare, insurance, etc - although if you have reviewed your expenses (see tip 2), you may be able to make some savings. However, when it comes to the other things you choose to spend your money on – your discretionary spending on things such as days out, takeaway food, etc – there will be things you can do to cut your costs.
4. Live within your budget
Whilst sitting down and creating a budget is great, it is no good if it is then consigned to a draw and never looked at again. So, make sure you regularly update and review your budget and aim to live within it. This means spending less money than you have coming in each month.
See it as a personal challenge to beat your budget by shopping smarter – maybe use budget supermarkets for everyday essential products, shop around to get the best deals on other things and make small tweaks and changes to your lifestyle which helps keep costs down.
This could include cutting back on takeaways, turning off unused appliances to cut energy costs, and a whole raft of other money-saving and cost-cutting tips you can find all over the internet.
Also, avoid the temptation of putting spending on credit cards that you can’t afford to pay off in full. Whilst it can be tempting to “buy now and pay later”, you will have to pay it back eventually and it will impact you in the future. If you do need to use a credit card – perhaps you have an unforeseen expense – try to pay off the balance as quickly as possible, and certainly never just pay the minimum amount. This will help ensure you limit the amount of interest you end up paying and also help maintain/improve your credit score over time.
As you try to live within budget it is hugely important to keep your financial goals in mind (See tip 1). Knowing you are making changes, sometimes doing without and taking control of your finances can be much easier if you remember why you are doing it and the progress you are making.
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