I’ve never been good with money. The minute I have it, I feel like I have to spend it. When I first started university, I had to open a bank account for my student loan and the bank kindly gave me a large overdraft for ’emergencies’. I translated ’emergencies’ to ‘free money’ and I’ve been living out of my overdraft ever since!
Now that I’m in my forties with a mortgage, bills to pay and multiple financial responsibilities, I feel like it’s high time that I took control of my financial health. The need to start making my money work for me has become a priority as I start planning for my future and counting down the days to retirement. In short, it’s time to grow up and stop spending like a teenager.
In today’s blog, we’re going to share some financial health tips that will show us how to take control of our financial health. No one wants to spend their days worrying about when the next bill is going to come in and how their going to pay it. It’s time for us to stop fearing our finances and start being responsible with money.
Set a Realistic Budget
Setting yourself a realistic monthly budget is the first step in taking back control of your spending. Knowing how much you earn and how much your monthly bills are is one thing, but you also need to start taking account of your spending habits. There are many different ways to budget, but I would suggest that the best way to start is with a spreadsheet. If you want to find a good budget template that works for you, a quick Google search will show you multiple templates available to download for free (the last thing you want to be doing is spending money on one).
For the first month, add all of your spending into your spreadsheet so that you can get a clear view of your income and outgoings. If you’re anything like me, you may be surprised at the amount you spend on fun things like clothes, going out and treats in general. Once you have got a good idea of how much you’re spending and what you’re spending it on, it’s time to set a new monthly budget for yourself so that you can start living within your means and building some savings.
A good budget approach to use is the 50/20/30 rule – 50% of your monthly earnings should be spent on things you need, such as bills and groceries. 20% should be going into your savings account and 30% could be used on things you want such as a new outfit or a luxury for yourself. Applying the 50/20/30 rule to your budget will help you to set hard limits on your spending and get your savings boosted in no time.
Clear Your Debts
Debts can very easily pile up if you don’t keep an eye on them. As well as overdrafts and bank loans, more and more people now choose to use instalment plans to purchase big items like a new sofa or a laptop. As a consequence, your direct debits can start to mount up and you end up paying way more for the product than it’s actually worth. It may be tempting to sign up to one of these plans to get that big shiny new television, but make sure you stop and think about the repercussions of signing up to a long-term payment plan. It may be more worthwhile to wait for a while, save your money and buy it outright.
Wherever possible, make it a priority to clear your debts. Factor debt repayment into your monthly budget and put away a percentage of your pay each month to cover it. You could even investigate looking into ways to combine your debt so that it’s all in one place. There are some credit card companies who will make you a balance transfer offer to consolidate your debt and pay a lower interest rate. The more debt you have, the harder it will be for you to save for the future so try and clear it down as quickly as possible.
Set Up an Emergency Savings Fund
An emergency savings fund or a ‘rainy day’ fund is an essential tool to have in your finance plan. If the worst happens and you lose your job or your boiler decides to pack up, you’re going to need some cash, fast! When you’re allocating your paycheck, don’t forget to squirrel a little away for just such a ‘rainy day’.
If you set up a monthly direct debit, it will even go out of your account without you having to think about it. The average recommendation for your emergency savings fund is to have 6 – 12 months of your essential living expenses to cover you if you do lose your job. Having a financial safety net to use for if the worst happens will help you to feel more financially secure and provide you with a cushion should something go wrong in your life.
Establish Multiple Income Streams
Budgeting and saving is one thing, but how do we increase our income without changing our job? Lots of people are now turning towards setting up multiple streams of income for themselves. This idea has become particularly prevalent in the last 2 years, due to the pandemic. Whilst stuck at home, workers have diversified their financial portfolios through setting up their own companies or starting a side hustle such as selling their services freelance on short term contracts, all whilst continuing to work at their full-time day jobs.
Side hustles can provide you with a good source of additional income but you do need to ensure they don’t interfere with your full time job. Another way to earn some additional cash, could be through setting up a passive income stream, such as selling ebooks or creating an eCourse. Once you’ve produced them and set them up, they practically take care of themselves.
Review Your Finances Regularly
When it comes to looking after your finances, you can’t take a ‘one and done’ approach. Reviewing your finances on a regular basis will help to keep you on track with your spending, saving and budgeting. If big bills are mounting up or unexpected expenditure comes your way, then it’s best to tackle it head on and look at options for how you can get your finances back on track.
Set Financial Goals
Once you have a handle on your budgeting, you can start to set some long term goals for yourself. Think about where you want to be and what you want to be doing in one, five or ten years time. How can you make your money support your goals?
Set goals for your savings. Start planning for that big trip you want to take and start budgeting for it now. If you have a plan to be living in your own home in 5 years time then start saving towards that deposit as soon as you can. Make a plan and stick to it and all of your dreams will soon seem so much more achievable.
Start Planning For Your Retirement
Retirement ages have increased in the last 10 years. It currently looks as though my partner will be able to retire at 65 but for me, it’ currently 72! That’s far too late in the day in my opinion. To ensure that you can retire early and enjoy your later years, make sure that you start saving now.
State pensions are not that great so it’s wise to pay into your company pension. Review on an annual basis and top up your payments wherever you can. It’s also worth thinking about opening a private pension and squirreling some money away every month.
We hope that these finance tips will help you to start to take control of your financial health. Managing your money doesn’t need to be scary. If you budget, save and review your goals regularly, then you can start making your money work for you today so that you can have the future that you want tomorrow.