As unpredictable 2020 was, 2021 is a fresh start and a chance to make some lasting financial New Year’s resolutions. Here are some top tips on how to improve your financial health and make money resolutions that stick:
Making an expense budget is easy, sticking to it is harder. List down all your regular and essential expenses and any costs you know are coming up. Trying to cut down on your expenses will obviously help you save, but building a solid 12 month budget will guide your finances throughout the year. Try to spend an hour or two creating a budget. Review it regularly and adjust as necessary.
Build your emergency fund. One thing the Coronavirus has taught us is that financial security is incredibly valuable – you never know when you might need that bit of extra cash. That’s why it’s important to build an emergency fund. How much you might need in an emergency will be different for everyone, but an initial goal of reaching £1,000 over the year is a great start. Put a little into your emergency fund each week, and don’t be tempted to raid it for anything but an emergency!
Ants are tiny, but if you’ve ever had your home invaded by an ant colony, you’ll know they’re a real nuisance! It’s the same with spending. An ant expense is anything that takes money out of your pocket regularly and unnecessarily – it could be the chocolate bar or coffee that you buy every afternoon. In your budget try to add up all your ant expenses and you’ll see they have a big impact on your ability to save.
Nearly everyone has some form of loan, but personal debt is the most commonly neglected area of personal finances and it can have the biggest impact on your long-term financial health.
Reducing your debt is the best way to improve your financial prospects and build access to credit when you need it in the future. You should consider any debt repayments as an essential expense when building your budget. Why not set yourself a target now for how much you want to repay this year and make it part of your New Year goals?
If at any time you think you will struggle making repayments, talk to your lenders, set up payment plans, pay in advance if you can, or talk to specialist debt management services and charities like StepChange, or MoneyAdviceService.
Motivation can be difficult to maintain if you don’t regularly check in to see your progress towards your goal. Measuring your efforts along the way will tell you when to tweak your plans and update your budget, if needed. What’s more, watching yourself grow and get closer to your target can give you an enormous sense of accomplishment.
Even though we’re in lockdown, many of us are still really busy juggling work, family and trying to avoid boredom! But many are already making significant savings by not going out, not using daily transport or spending less on socialising.
Consider whether these savings could be channelled into your retirement plans. Ideally, everyone should save 10 – 15% of their income each year. For most people, contributions to your pensions can be increased easily through your employer. If you’re lucky enough to be saving well during this pandemic, talk to your work about increasing your pension contributions. Future you will be grateful!
Remember, having a bad credit history is not the same as being in financial difficulty. If you think you are in financial difficulty or are finding it difficult to pay your bills on time you should seek an alternative solution. To get debt advice information, we advise seeking independent advice from an impartial service like Citizens Advice or a qualified Financial Advisor.