Stepping out on the path towards successful money management often starts with you telling yourself that you need a little bit of extra money every month. Taking this first step is fine, but it is good to have some guidelines to keep you on the right track.
To help you along the way to managing your finances better, here is a list of guiding principles - Ten Commandments for successful money management.
1. You Should Always Shop Around
When it comes to renewing utilities or insurance policies, always shop around for a better deal. It is easy to let these things roll over from year to year. Check your automated payments on your bank statement, and watch out for renewal letters. When the opportunity comes around to switch to a cheaper supplier, take it and make potentially huge savings. If you do this, you'll remove yourself from the 41% that avoid doing so.
2. You Should Prioritise Tackling Debt
Debt can have a devastating effect on your life and wellbeing. It can scupper any plans you had and can even make it challenging to enjoy everyday life. Becoming debt-free should be one of your top priorities.
When it comes to the practicalities of tackling debt, first deal with the ones with the highest interest rates, such as credit cards. When you're paying interest, you are not lowering your debt. Paying off the high-interest debts will leave you more money to pay off the capital loan amount.
You can get into debt quickly, but it may not be quite so fast getting out of it. Remain focused on clearing your debt, but do not become overwhelmed. Pay off as much as you can afford, and when you have a bit extra, pay a bit extra. If your debt starts becoming too much to handle, try speaking with a debt counsellor.
3. You Should Look After Yourself First
Giving your children financial support and a helping hand is a natural thing for parents to want. Over half (56%) of all Brits have received a boost to their savings from parents. Around 52% of parents are gifting their children up to £5,000 with no expectations of it being returned.
Wanting to help this way is excellent, but you should only do it if there is no detrimental effect on your retirement plans and financial security. It is okay to say "No" occasionally and look after yourself first.
4. You Should Invest As Well As Spend
It can often feel like your monthly pay has been spent even before you have it. At times like these, it's challenging to think about investing anything. That's why it is essential to set up an investment that you automatically pay into before you have a chance to spend the money elsewhere.
There are plenty of opportunities to invest your money, so that is working for you. An excellent vehicle for short to medium-term investment is a Cash ISA. You might not get the best interest rate investing this way, but it does have the advantage of being tax-efficient. You can invest up to £20,000 annually into a Cash ISA without having to pay tax on the interest you earn.
If you do go down the Cash ISA investment route, be sure to check the amount of notice needed to access your funds. You may not want your money tied up for too long, particularly if you feel you'll need it in an emergency.
Another tax-efficient way of investing is through a pension fund. You have a tax-relief annual allowance of up to £40,000 (depending on your salary) on your pension contributions. As your pension is likely to be locked away for many years, it will have plenty of time to grow. Maximising your pension contributions means you'll get the most from your annual allowance. Also, you'll benefit from years of compound interest, giving your pension a massive boost.
5. You Should Stick to a Budget
Budgeting requires willpower; there is no doubt about that. There are so many temptations to part with your money and have everything you want right now. Setting a budget and sticking to it will provide you with peace of mind and keep you in the black financially.
The first thing to do is arrange for your direct debits and other regular payments to leave your bank account as soon as you get paid. Setting up this routine will give you a clearer picture of your financial situation for the rest of the month.
If budgeting is not second nature to you, there are plenty of apps available to help you out.
6. You Should Accept Free Money
There are few times in life when you can genuinely consider that you've received a 'free lunch,' but a workplace pension is one such occasion. A significant benefit of a workplace pension is the contributions made to it by your employer. They will contribute a minimum of 3% of your salary.
These contributions are money that you would not get if you opted out of the pension, so it is effectively free. Over the lifetime of your pension, these contributions will build up significantly, and they'll benefit from compound interest. So, don't turn down free money, and stay in your workplace pension scheme.
7. You Should Plan For The Unexpected
Have you considered how you would cope financially should disaster strike? Even a small emergency such as a broken boiler or unexpected car repairs can cause significant financial stress. An excellent way to plan for the unexpected is to set up an emergency fund. Having around 3-6 months' worth of living expenses will provide peace of mind for dealing with life's inevitable crises.
8. You Should Declutter Your Finances
Organising your money into separate accounts will give you greater clarity and control over your finances. You could have individual accounts for monthly bills, another for everyday expenses, and a third for savings. As soon as you get paid, you can allocate a specific proportion of your money to each account.
Doing this will allow you to understand where you're spending your money and how much you have left at any point. With a mobile banking app, decluttering your finances and managing your money has never been easier.
9. You Should Take Care Over Digital Spending
Mobile phone contracts, video streaming services, TV packages, online subscriptions, and so on. The digital revolution certainly has provided plenty of opportunities to part with your hard-earned cash. Unfortunately, it is easy to get drawn into something you may not fully use, especially when enticed with fantastic introductory offers.
Take care when signing up for such deals. Ensure you read the small print and know what you'll be paying and for how long. Also, look for cheaper alternatives when your contract expires.
10. You Should Ensure Your Pension Is Working For You
You may well be saving into a pension already, and that is an excellent thing to be doing. However, it's not enough merely to pay into it; you've got to ensure that your pension is working for you by checking it regularly.
If you don't, your pension could be haemorrhaging value through high fees, poor performance, or both. Okay, your pension is invested for a long time, but even small increases in fees or reductions in performance can have a significant effect on your retirement funds. You should check over your pension regularly and ensure it is working for you.
If you are looking at options for your pension, consider using a regulated pensions specialist like Portafina or, view the info at Pension Wise.
Copyright 2021. Article was made possible by site supporter [Portafina]