There is little point in putting off becoming financially organised. It is much better to get started immediately. The good news is you can get your money organised and get back onto the right track financially by making a few small adjustments to your lifestyle.
Whether you want your finances to change considerably or make a few minor adjustments here and there, help is on hand. Here are 10 top tips for better money management.
1. Eliminate your debts.
Eliminating your debts should be your number one priority. That’s because if you have a large amount of debt, it will have an adverse effect on the rest of your money management plans.
The greater your financial obligations, the more of your disposable income you will have to spend on interest payments to your lenders. You must clear your debts as fast as possible, and doing so will make your life much less stressful. Therefore whenever possible, you should consider making overpayments on your outstanding loans, Even though you will have to make small sacrifices elsewhere.
2. Shop around.
Setting up direct debits or standing orders for regular payments is a good sign of getting financially organised. However, it also means that you could be paying more than you have to for specific products or services.
Before renewing, you should regularly check what you are paying for your automated payments and shop around for a better deal. The inconvenience of changing your direct debits and standing orders is minor compared with the considerable savings you can make by doing so.
3. Think more about yourself.
Around 52% of UK parents have gifted their offspring up to £5000 with no expectations of that money being returned. If you’re one of these people, you’re very generous, which is an excellent quality.
However, you should start to consider yourself more to get yourself financially organised. Think twice about being overly generous with your money, especially if it will harm your retirement plans. After all, if you are financially secure in retirement, the better position you will be in to help others out financially.
4. Invest as well as spend.
Lots of people have good intentions of saving or investing some money rather than merely spending it. However, this remains just an idea in most cases, and they never really get around to starting.
Even when they start saving, some people rely on the money they have leftover at the end of the month once they have done all their spending. Of course, the problem with this strategy is that people tend to spend as much money as they have available, and often more.
A better strategy to achieve a successful saving or investing goal is to allocate money to these before you have the chance to spend it. You have plenty of options available to either save or invest your money. These include options ranging from the short to long terms and with varying degrees of risk and access. The financial vehicles you opt for will depend on the level of access you require and the risk level you’re willing to take.
A good saving option for short to medium term is a cash ISA. The interest you receive from these may not be overly attractive; however, they provide you with a low level of rest. ISAs also have the benefit of being a tax-efficient way of saving. You can invest up to £20,000 per year into an ISA, and you won’t have to pay any income tax on the interest you make.
Before committing your funds to a cash ISA, or any other investment for that matter, you should understand what notice period you have to give to access your money. If you feel you might need access quickly, you should choose one that has no access restrictions.
The most common option to save and invest for the long term is a pension plan. With pensions, your money benefits from long-term growth over decades and compound interest.
You also benefit from tax relief on your pension contributions. This tax relief applies to contributions up to the value of £40,000 or your annual salary value, whichever is the lowest amount. As it is a long-term investment, you’re unable to access your pension funds until at least age 55.
5. Start budgeting.
Budgeting is a relatively straightforward process. However, setting a budget and sticking to it requires an element of willpower and effort. The trifold enticements of cashless payment options, cheap credit, and 0% interest make sticking to your budget challenging. But if you have the discipline and willpower to stick to your budget, you will benefit significantly in financial management.
The first step to developing a successful budget is arranging your automated payments to be paid as soon as your income arrives in your bank account. Having settled these, you will have a clearer idea of the money you have left for the rest of the month.
Your next step is allocating the remainder of your money proportionately to your spending categories, such as food, transport, entertainment, etc. There are various three applications available that can help you with budgeting should you require assistance.
6. Don’t turn down free money.
You might think that this tip does not need to be said. However, you might be surprised by the number of people turning down free money every month. They are doing so because they have chosen to opt-out of their workplace pension scheme.
A significant benefit of a workplace pension is that, in addition to your contributions, your employer will contribute the equivalent of 3% of your gross annual salary into your pension pot. As you would not typically receive this financial benefit if you were not part of the workplace pension scheme, you can consider it free money.
Would you turn down free money? That is what you are doing if you opt-out of your workplace pension scheme.
7. Be prepared for the unexpected.
It is impossible to predict the future with complete accuracy. As we all know, an unexpected event or emergency can crop up at any time. Therefore, you should factor the unexpected into your financial planning.
Establishing a pot of money that you can set aside to cover emergencies will give you peace of mind that you can deal with unexpected events such as car repairs, replacing broken appliances, or other minor crises. As a basic guideline, your aim should be to have around 3 to 6 months’ worth of living expenses set aside in an emergency fund.
8. Get de-cluttered.
Not many people would consider storing all of their clothes in a single box. However, most people keep all of their money in a single bank account, regardless of its use.
You should consider establishing separate bank accounts for each of your different spend categories. Doing so will give you greater control over your finances, make budgeting more effortless, and give you more excellent opportunities to save or invest. Online banking has made it incredibly straightforward to establish these different accounts or “money pots.”
9. Be conscious of your digital spending.
The amount you spend on digital expenses such as broadband, streaming services, mobile phones, and others can add up to a considerable amount of money. A common tactic used by digital service providers is to offer new customers discounted rates for a set period.
The problem is, once that period has expired, the amount you pay can rise considerably. Therefore, you should always be conscious of your digital spending and regularly check that your costs have not risen sharply. When renewing your services, you should follow tip number two and shop around for the best deal.
10. Conduct regular pension reviews.
One of the most significant ways you can become financially organised is to start saving into a pension. Doing so will give you peace of mind that you are preparing for a comfortable retirement.
Although it is great that you have started saving into a pension, it is insufficient to make contributions without checking your pension’s performance. Conducting regular pension reviews will ensure that your pension charges have not risen too much and that your pension performs as expected. Both of these can harm the growth of your pension and so jeopardise your retirement funds. Therefore, the sooner and more regularly you conduct such reviews, the more opportunity will have to take remedial action if required.
The best time to start getting financially organised is right now. Hopefully, adopting these ten tips for better money management will get you on the road to being more financially organised and living a more stress-free life.
Before looking at options for your pension, consider using a regulated financial adviser like Portafina.