31st December is the second most popular year end date for accounting purposes (after the 5th April) and even if you don’t run your own business, it can be a logical time to take a look at your finances over the previous year.
How much did you earn this year?
How much did you spend?
Has your net worth increased, or decreased?
Taking time to review your spending, can be an excellent way to actually see where your money goes each month, and if you are in control of your money – or if it is in control of you.
A simple step like identifying subscriptions that you don’t use (gym, Netflix, magazines) and then cancelling them, or replacing with a more suitable equivalent, can save hundreds of pounds over the year – freeing up money to repay your debts, save for your future, or spend on things that really matter to you.
It’s all about balance.
Many people feel there is no point funnelling all your spare money into paying off debts, or saving for retirement, if it means that you have no money over to live for now and are not prepared to give up (or reduce spending on) holidays, cars, clothes and meals out.
Other people would rather scrimp for a couple of years to get financially straight, and then have the peace of mind to know that the money can be spent extravagantly on the things that they desire.
Personally, I think life is about experiences, and making an impact on those around you – rather than the accumulation of stuff. Although there is nothing wrong with having nice things, we would rather spend money on experiences that create amazing memories now and balance that with planning for our future dreams – which does not include working to a State Retirement age of 68!
1. Where is your money going?
The first step is to complete a budget planner – being able to see where your money goes, is important if you are to make any plans at all. Sometimes it can be a catalyst to make a change – I have had smokers who finally had the motivation to give up when they realised how much they spent on smoking each month, this money over a year will let them take their children to Disneyland. Another lady realised that by changing her gas and electric provider she could free up money each month which she could use for her retirement planning – but if you don’t add up the figures you’ll never know.
2. Where do you want to go?
The second step is to sit down with your partner, and /or your Financial Adviser and talk about what your life goals are, and whether your current spending habits will allow you to get there. Having advice from someone outside the family, can often provide a more balanced perspective and allow you to consider the whole picture. A good adviser will take the time to find out what is important to you and why.
3. Make a plan
The third step is to create a plan. Your plan. Based on what you actually want, not what society / your parents/family/friends say you should want. It may include Financial goals, but don’t forget to look at the whole picture. Should you include health and wellness – important to fully enjoy the lifestyle that you create or maybe a personal development goal, have you always wanted to play the piano or learn how to bake and decorate cakes.
Now, I’m not suggesting that you need to set SMART objectives here – a sure way to fry anyone’s brain – but you should know what you want to achieve and have some sort of timescale in mind. This leads on to:
4. Make it manageable
The fourth step is to break your plan down into manageable chunks. It feels good to cross things off your list, and see yourself move closer to your dream, giving you the motivation to continue – that is why fundraisers often display ‘barometer type’ charts to show money raised, and children respond better to seeing money in a jar rather than a bank account. Now, if your goal is financial and medium to long term– please don’t stash your money in a jar, not only are you risking theft, once you take off the effects of inflation, your money may not be worth what you need it to be in the future. Talk to a Financial Adviser about ways to allow your money to keep pace with inflation.
5. Review progress
The fifth step is to review your progress. Regularly. How often you do this, will depend on you and your goal – some people are happy to do this annually, others quarterly, monthly or weekly. Our on-going service proposition allows us to review most client portfolios every 6-12 months to check that their pensions, ISAs etc. are performing as expected, as these are typically for longer term financial planning– but if your goal is to repay a credit card, save for a car/holiday or to lose weight, you may need to check and record your progress much more frequently.
Download your free Budget Planner
This interactive pdf will allow you to easily add up your incomings/outgoings without the need of a calculator – feel free to get in touch if you need any help completing it or would like to chat about what you find.
To celebrate the launch of my new website – and as it is the season of goodwill –
The first 5 motivated people to email me their budget planners will be offered a financial MOT and consultation in December (at our cost) – be someone who makes a difference in 2017.