Being financially comfortable isn’t just for the wealthy. Feeling in control of your money, and being able to make plans for the future is the ideal state to be in – but if you don’t know where to begin, it can be daunting to unpick your financial situation, and to know what’s needed for that control and planning to become a reality. So here’s where we’d recommend you start, with five good financial habits to get into for 2023 – and it all starts with your current account.
Become a bank statement expert
The first and the most important habit of all – becoming a forensic expert in your own finances.
At the end of each month, make it a regular exercise to go through your current account statement and review each line. Knowing exactly what your regular commitments are is essential for understanding how you can make changes, savings or increase your spending if necessary. You’ll be able to see if there is any unexpected activity on your account and do something about it, and you’ll also be able to stop any regular payments that are no longer necessary. Pull the plug on any payments you no longer need to make – you’d be amazed by how many direct debits keep on going, even when the service is finished. Mobile phone insurance for a handset you no longer have is a prime example!
Getting into this monthly habit of reviewing your spend, and taking a note of each month’s end balance (or deficit) will lay the foundations for all the other good habits to adopt. You’ll have your income and expenditure information at your fingertips, and you’ll be able to make all of the budgeting, saving and debt management decisions you need to get your finances in tip-top condition.
Manage your debts
Debt can be good – regular payments all contribute to a healthy credit record – but unmanaged debt can be bad, and missed payments have the opposite effect. There are lots of ways to manage the debt you have, and the best place to start if you’re struggling is to speak to your creditors, and work out a plan you can afford. Their ultimate goal is to see their money coming back in
, and they will do what they can to help you make that happen.
You may be tempted to go for a debt consolidation loan, but be cautious. This could be the right solution for you, but it could also work out more expensive in the long run – especially if you take out other new loans on top.
Set a savings goal
When you’ve got your income and outgoings clear, you can start to look at what’s left over – and create a savings goal. Even if you don’t have something particular in mind, deciding on a sum and paying regularly towards it is an excellent habit to get into – and if nothing else, it can be invaluable a “rainy day” fund. Decide on a certain amount to save each month, put it into a separate savings account (better rates are coming available all the time), and it will mount up in no time.
Save on your mortgage
If you’re on a fixed term deal, you’ve probably got some early repayment penalties built into your mortgage contract – but you’ll also have some capacity to make overpayments up to a certain amount each year as well. Making these overpayments can have huge benefits, including a sizeable reduction on your mortgage term, or lower monthly payments.
You don’t pay interest on the overpayments, so you can save big in the long run if you’ve got the spare funds to do it. But again, do some research and make sure that money wouldn’t work harder for you in a savings account – especially if you are on an older mortgage deal with a low interest rate, in which case you’d be better putting the cash aside to earn interest in an account you can access should you need it.
Plan for retirement
Having a pension through your employer is an excellent foundation for your retirement plan, and if you have some extra money to invest regularly, see whether you can add to your work pension fund – or set up a separate, private one as well. The fund will soon start to increase, especially with the additional government tax allowances for pension payments, and will provide another stream of income for you in retirement.
The investment market is also worth considering for longer term planning, as are fixed term savings accounts which yield you a high interest rate in exchange for locking away your investment for a period of time.
And finally…seek advice
Not officially one of our five habits, but as financial advisors, we can help with any and all of the above. We’d love to help you feel in control of your finances, achieve the goals you want in life, and to see your own wealth begin to grow. Give us a call today to review where you are now, and what support you may need to get your wealth habits in place for 2023.