Planning & protection
Elizabeth Webb
It will help you to keep track of exactly what is coming in and also what is going out. Without a budget, you are likely to be unprepared when you hit an unexpected financial hurdle, which is particularly pertinent during the current cost of living crisis.
Knowing what you have, what you need for the future and having a roadmap to achieve those goals is the best way to have a good relationship with your money and to develop a structured financial plan.
Here Fairstone Chartered financial planner Elizabeth Webb, shares some tips to help you keep your finances on track.
The first thing to do is to get everything together to help give you an accurate picture of all your incomings and outgoings. This includes collecting a few months of bank statements, credit card bills, household bills, information on savings and pension contributions.
Next you need to work out everything you have coming in each month from your salary (after deductions) and any other sources of income you may have (savings, investments etc).
Getting all your statements and bills in front of you will give you an accurate picture and check over a few months to get an average monthly amount, as this may vary slightly.
The next step is to work out your average monthly spend, going back over the previous few months and making a note of all expenditure.
Start with your essential spending; so this includes rent/mortgage, household bills, groceries, car etc. It’s important that you never underestimate your expenditure and that you’re realistic. If you’re not sure of the figure, go higher as that way you will have cash left over rather than be short.
Then you need to work out your non-essential spending (or ‘fun money’) which will include such things as streaming services, going out, entertaining etc. Again be honest!
After looking at what you have coming in and what is going out, you now have an accurate snapshot of your monthly finances.
It’s always worth at this stage looking at where you might be able to reduce your outgoings. Take another look at your bank statements and is there a direct debit or a standing order that you don’t really need? Are you making impulse buys throughout the month, and if so, can you cut back on these?
Any reduction in expenses will help give you a financial buffer in times of need.
Also look to pay down your debt – this will help you be prepared for what’s ahead, particularly as rates are expected to move higher in response to rate hikes.
You might also want to try using a budgeting rule of spend one, save one, invest one which is essentially for every pound you spend, you save one (for holidays or large expenses) and invest one (in a pension or long-term saving for example). While that might be difficult at the moment, it is something to work towards and will make you think twice before spending anything.
Once you’ve worked up your budget, make sure you go back to it each month to check it still works for you and that none of the details need changing.
As an on-going commitment, if there’s ever more month than money, see if there are areas that could be cut back on and commit to doing so if you can. If it is more concerning and you can’t see the light, get help quickly.
Also understand your financial resilience. What if things go off plan? Is there a savings buffer in place? If you have any spare cash, bulk up your emergency fund – ideally you should have enough savings to cover three to six months of living expenses.
Do you have life cover, critical illness cover or protection if you couldn’t work for a long period of time? These are all specialist areas where professional financial advice can help.
And keep an eye on your long-term goals; are your pension savings coming along as they should and have they been reviewed? Assess in detail what you have in place and how much they might give you when you retire.
While this might seem a lot to do, even taking small steps will help you to feel more in control of your finances and reducing or removing one expenditure will have an impact. Work on forming good habits and developing a positive mindset around money.
If you need support with your financial journey, get in touch with a Fairstone adviser today.
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