How to spring clean your finances

 

 

Lambs with coatsFebruary can be a tough month, financially speaking. Many people will still be in the process of paying off their credit card balances that are left over from Christmas spending.

That’s why now is a good time to look at your income and outgoings and see how you can make your money work better for you.

The cost of living is on the rise

Increases in the cost of essential items like food and petrol are also putting pressure on household budgets and a quick money makeover could help you start 2018 in robust financial shape.

Here’s how to assess your own financial resilience, make provision for the future and reduce your debt.

  1. Get your documents in order

 When your filing system works properly, and you know where to find your bank statements, you will feel much more in control of your money, says Simonne Gnessen, money coaching and founder of Wise Monkey Financial Coaching.

“Buy a lever arch file and keep your receipts in a plastic wallet labelled by the month,” she says. In a different file, keep your bank and credit card statements filed in chronological order.

Keep your files in a designated place – perhaps a filing cabinet which has space for bills and bank statements to be kept safely.

“You might need to create separate folders, either physically or on your computer, for example for internet orders, utilities, bank statements, household bills.”

  1. Review your spending

 There are now lots of useful apps and software packages to help you monitor your spending.

You could try the budgeting app Mint, which syncs bank accounts, credit cards and monthly bills so you can see your net worth 24/7. You can also track specific types of purchases over time, like how much you spend on Uber journeys. www.mint.com

Money Dashboard allows you to view income and expenditure in one place, syncing credit cards, current accounts and savings. www.moneydashboard.com

You can also request your own bank to send text alerts when you are close to being overdrawn.

Citizens Advice has a useful budgeting app.

 3. Find ways to cut costs

Once your bank and credit card statements, household bills and insurance policies are in order, have a good look at them.

This will give you a clearer picture of your income and expenditure every month. The questions you could ask yourself are:

  • Where could savings be made?
  • Do insurance policies need to be updated and could you get a better deal by shopping around and using comparison sites?
  • Are you happy with your current account and does it suit your lifestyle or are you being hit by overdraft charges or paying for services you never use?
  • Would you prefer to keep some money in your account and be rewarded for that, or earn cashback on credit card purchases?

Think about your goals for one year, five years and 10 years – do you want to have paid off a debt or your mortgage, or simply have everything in order?

  1. Shop around for deals

 Comparison sites make it much easier to see whether you are getting a good deal on your home contents and buildings insurance, car cover, travel policy, utility services and your extras like tv and broadband packages.

Heating and lighting bills are higher at this time of year, so it really pays to switch if you are not on the most competitive deal. Just watch out for any early redemption penalties in the small print of your current deal.

“Try realign your annual review dates for car insurance, utility bills, and cable tv, so you can devote only one day a year to getting the best deals,” says independent financial adviser Yvonne Goodwin. “Keep costs down by making it your aim to switch to more competitive deals.”

 5.Set aside money for emergencies

 As a general rule of thumb, it’s a good idea to have three months’ worth of salary or outgoings set aside in a savings account for a rainy day. You can build up this fund gradually by setting up a direct debt from your current account which saves small amounts on a regular basis.

Over the long term this can really add up, and means you are covered against any emergencies. Regular savings accounts pay good rates of interest but do require you to commit to 12 months’ worth of saving.

Don’t forget: If your employer offers a pension scheme, especially one that they pay into for you then join it.  If you don’t, it’s like throwing salary away.

 

  1. Start to pay off your debt

With interest rates on savings so low, you will pay more interest on your debt than you receive on any savings. So, it makes sense to clear your debt as quickly as possible.

Could you get a better deal on your credit card? It may be that you are able to transfer your debt to a balance transfer card, which will cut your costs. Just make sure you have a plan to pay off the money in the long term. Watch out for the transfer fee and do your maths so that you know whether the savings are worth it.

If you are only making the minimum payments each month, could you increase them, even by just £10? That will make a difference over time.

 Enjoy your new money confidence

Simonne Gnessen says: “When you take control of your money it can give you a massive confidence boost, which feeds through to other areas as well. You are reinforcing a message to yourself that you are able to achieve these things, and that is very powerful.”

Happy piggy bank

 

 

 

 

 

A shorter version of this article appeared in Reader’s Digest Money

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