Kickstarting Your Finances

At the beginning of the year many people take the opportunity to make changes. Some decide to adopt a healthier lifestyle; losing weight, stopping smoking, or reducing the amount of meat they eat. Others see the start of a new year as the motivation they need to look for a new job, start a new hobby or even move house.

hether you are one of these people, or not, a new year is also the perfect time to review your finances to get them in to better shape for the year ahead. Here are some tips to help you do this so that, regardless of whatever else you decide to do this year, at least your finances will in better shape:

Sort out your paperwork!

For many people, the biggest barrier to sorting out their finances is having all the information to hand that they need! Set aside some time to create a filing system for your financial paperwork that works for you. That way, when it comes to renewing an insurance policy, looking at changing your electricity provider, or working out if your savings are in the best place, you will know exactly where to find what you need.

Of course, a lot of financial paperwork is now online, so it may be a case of getting details of all your policies, utility providers, credit cards, savings accounts and so on, together, and then setting up an online filing system rather than having them in paper format. Either way, find a system that works for you and don’t put off getting it done. You’ll be amazed at how much easier managing your money becomes when you have a clear picture of all the things you must pay.

Decide on your money goals

Once you have sorted out that huge bundle of paperwork and got a filing system in place, think about what you want your money to help you achieve. For example, your short-term goal may be to not go into your overdraft each month, your medium-term goal may be to clear your credit card debt, and your long-term goal may be to save a deposit for a property or pay off your mortgage. Whatever your money goals are, having clear things to aim for will help motivate you to stick to your budget. Earning money naturally gives us the ability to achieve our money goals, but managing our money well is what gets us there.

Create a budget

To manage your money well you need a budget so that you know what money you have coming in and going out. It’s only by knowing where your money is going each month that you’ll can look to reduce your spending, clear debt, and save money to reach your money goals. There are lots of budgeting tools available on-line that you can either print off, sign up to or download but a budget need not be complex. In its simplest form it is a list of what money you have coming in each month, and where that money goes (e.g. spending, saving, repayment of debt, etc). You do need to be thorough and honest with yourself though. Otherwise, your budget will bare no relationship to your actual circumstances, and you’ll never reach your money goals.

To effectively budget we suggest you print off a copy of the previous month’s bank and credit card statements and record all your outgoings. Do this line by line to build a true picture of what is being spent and avoid missing spending that can be easy forgotten – such as online purchases or, perhaps, takeaway coffees. Remember to also include in your budget those things that only happen once a year, such as birthdays, Christmas, holidays, and insurances. You can budget for these by putting aside a little money each month to cover the cost in the future.

Use your budget to help you achieve your money goals

Once you’ve created your budget, you will be able to see how much you are spending, and where your money is being spent. Broadly speaking, our spending falls into three categories:

• Essential spending: things such as rent/mortgage payments, travel to work, utility bills, and food shopping that are essential for you to live day to day
• Debt repayments: things such as loan repayments, car finance, phone finance etc. that you are contractually obliged to pay
• Discretionary spending: things you choose to spend money on, such as takeaways and days out, movie channels, etc, which are not essential, but nice to do/have.

The first two categories are pretty much fixed, although you can reduce some costs, such as utility bills and insurances by shopping around when they are due for renewal. However, if you are spending more money than you have coming in, or the money you have left over each month is not enough for you to reach your money goals, look at how you can reduce your discretionary spending, such as having takeaways less often, or doing fun things that don’t cost money. The aim should be to get to a position where you are spending less than you have coming in each month. If you can achieve that, you will soon be achieving your money goals.