Getting started with personal finance can be daunting. Our simple 4 Step Process is here to make it a whole lot easier.
1. Step 1: Set your money goal
Your 'money goal' could be a physical purchase such as a house a car, but paying down a debt is also a common goal. It could be a place you want to get to in your money management journey: for example, no longer making impulse purchases.
Whatever goal you decide on, this step is essential to give you purpose and let you visualize what you want to achieve.
The coronavirus pandemic may have altered your choice of money goals, as many of us are under new or greater financial pressures. You might want to know that you're not spending an penny on extra non-essentials.
Schedule some concrete actions towards your money goal in your diary now. It's been proven that writing down your goals and setting deadlines for them will maximise your chances of success!
2. Step 2: Income
Now you have your money goal, the next step is to write down how much you have coming in each year and each month. For some of us this is simple, for others it can be a bit more complex, for example if you're self-employed or claiming benefits.
If you are feeling stressed about money at this time, you are not alone.
Many of us have lost work or been furloughed, or have applied for Universal Credit.
It's important to find out if you are entitled to any benefits you're not currently claiming. The Turn2Us Benefit Calculator is really helpful for this. According to government figures, up to an estimated £10.1 billion in benefits is left unclaimed per year!
3. Step 4: Expenses
Now it's time to make a budget. As Nadine from the Money A+E team puts it:
'Budgeting is essential if you want to achieve anything in life!'
For most of us, lockdown has affected how we spend our money. You have probably spent less on going out and travel, but your food and utility bills might be higher. This might be a time to focus on essential spending only.
One good way to make your budget is to look back through 2-3 months of bank statements and note down all your spending. The key thing is simply to know how much you have coming in and going out.
Then it's time to think about where you can cut back. Try to identify what spending is a 'need' and what is a 'want'. What can you live without?
If you can find just 10 minutes a day to look at your finances, it will give you a sense of control and confidence not only about money, but other areas of your life too.
You might be able to make savings by:
Shopping in a different supermarket
Looking through the direct debits coming out of your accounts and cancelling any that you no longer need.