The UK is not currently the most comfortable of places, financially speaking. The cost-of-living crisis entering its third year, and shows no real sign of lightening up; even if it did, utilities and groceries prices would not come back down from the heights they have reached in the interim. It is easily understandable, then, that many are nervous to re-evaluate their financial situation. Luckily, the process of keeping your finances in check is not as daunting as it first looks. Where should you start?
Conduct a Financial Health Check
First of all, you will need to gain a more comprehensive understanding of your financial situation as it stands. This means it is time for you to conduct a financial health check. This can start in such a simple fashion as figuring out your average monthly expenditure against your income, giving you your status-quo baseline. You will need this later.
You should also check in on how much savings you have, if any, and the state of any debts you may hold. These should be noted down too – a general financial wellness spreadsheet would be especially helpful. While doing this, you might also create an account with one of the ‘big three’ credit reference agencies, in order to find out the state of your credit score. This can be negatively affected by overdrafts or failure to pay down debts on time. In turn, it can negatively impact future attempts to access financial products, whether a new credit card or a mortgage.
Separate Your Savings
If you haven’t already, this would be a great time to ensure that your savings (again, if any) are stored safely. Do you have a separate account in which to sequester away any saved money? If not, you should take a look at the different kinds on offer and select an account that serves your best interests long-term.
If you feel any future savings are at risk of impulsive expenditure, it can be helpful to choose a limited-access account that prevents withdrawals within a set period of time. If you do this, creating an emergency budget should be a priority – if only to ensure that emergency costs do not negatively affect your day-to-day.
Define Your Essentials
This is a great point from which to start your financial wellness plan proper. Create a budget for yourself, acknowledging the various essential costs you must field each month: i.e.: rent or mortgage payments and utilities. Track your spending on non-essentials for a month, and log the data in your spreadsheet. Now you can do the work to figure out which non-essentials you can afford to cut, be they media subscriptions or wasteful food spending.
Pay Your Debts
The surplus expendable income you create from this endeavour will dramatically improve your saving power – but only if you are debt-free first. As such, paying off your credit cards or loans completely should be your main priority. The sooner your debts are paid, the sooner you can profit the most from savings interest rates.