With the new year now well underway, it’s a perfect time to take stock of your financial life. The way that you handle money can make a huge difference to your quality of life in the long term, leaving you with greater freedom to address your life priorities. But how, exactly, do you get your finances into shape?
Assess Your Current Financial Situation
To begin with, you’ll want an idea of your financial affairs as they currently stand. This means thinking about where your money is coming from, and where it’s going to. Get major ongoing items of spending down on paper, or use software. Once you have an overview of your money, you can identify where changes might be justified.
Set Clear and Achievable Financial Goals
What does success look like when it comes to your finances? Do you want to be debt-free within a decade? Do you want to go on a memorable, extravagant holiday every year? Whatever your ambitions, they should conform to SMART criteria – in other words, they should be specific, measurable, attainable, relevant, and time-bound. Don’t cheat yourself with vague or overambitious objectives. It’s better to say that you’ll ‘save a hundred pounds by April’ than it is to say that you’ll ‘try to be wealthier in the future’.
Create a Realistic Budget and Stick to It
It’s time to decide how you’re going to spend your money, from month to month. Your budget should be informed by the financial goals you’ve devised. Make sure that you have funds allocated for all of your bills. You can then work out which areas of spending don’t support your goals, and dispense with them. You might think of streaming television services that you’re not watching, or gym memberships that you’re not using.
Manage and Reduce Debt Effectively
In many cases, your outgoings might be related to debt repayments. It’s often possible to optimise your spend on interest by consolidating several different loans into a single manageable payment. Debt consolidation loans not only simplify your financial life – they can also reduce the cost of interest in the long run.
Plan for the Future: Savings and Investments
A portion of your monthly budget should be allocated to savings and investments. This might mean dispensing with a chunk of discretionary spending, but, over time, you’ll build your wealth. This can be very useful in providing financial security, especially if your income stream is volatile. Aim to have at least six month’s worth of savings to fall back on, so that you can easily cope with a temporary loss of income. The rest of your savings can be put toward your pension.
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