By Laurence Hillman, MD of 1Life
Many of us are guilty of making resolutions in January, and letting them go as the year progresses. Often these resolutions involve changing money habits by investing and saving, but halfway through the year, the realisation of not sticking to your goals may be hitting quite hard.
There is no need to start panicking yet because managing finances should be a top priority throughout the year, not just at the beginning or end. So now is as good a time as any to relook your finances, especially in light of the expected increases in the cost of living.
Review and re-evaluate your financesTo better understand your current financial landscape, begin with a big-picture view. Don’t try to budget in your head, rather list your household income, expenses and savings goals in an organised document, whether hand-written or using a computer, so that you can easily keep track of what you are spending and where - don’t forget about expenses such as bank charges, fuel and entertainment. The Truth About Money’s Budget Tracker is a good way to keep an eye on your expenses.
Try to find more money in your budget by cutting down on expenses. Identify which parts of your budget are considered wants and which are needs, then see whether you’re willing to cut some of the unnecessary expenses out.
Work out where you have managed to save and howIf you have managed to be successful in certain aspects of your finances then take note of why and how you were able to achieve these goals, as it may help you to achieve others. For example, you may have been able to save significantly more because of a debit order going off every month into a savings account. Perhaps you can do the same to pay off a credit card faster?
Once you have worked this into your budget, consider what you still need to work on, making sure to factor in changes such as pay increases or new payment commitments.
Look after yourself and your loved onesEnsure that your car, home, life and health insurance policies are updated to keep up with your respective life changes. Check that your cover still meets your needs and that your beneficiaries are correct. Remember, when updating your life insurance policy, that claims are only payable to your nominated beneficiaries. Ensure they understand how the policy works, what the benefits are and the amount that is payable, as well as how the claim process works and how it will need to be managed. Another consideration is having a Will in place and setting up a trust for your children in case something were to happen to you.
Plan your budget to get out of debt Work out how much it would cost you each month to reduce your debt, based on what you earn and other financial commitments you have. It is unrealistic to try and pay off all your debt in a month - you have to plan a repayment method that works. Look at statements and ask yourself which creditors you need to pay first, and then work on reducing the debts that carry the highest interest rate first.
Saving and investingWhile reviewing your insurance policies, it might also be a good time to review your investments and savings plans to ensure they deliver what you need and are accessible when you need it. Understand that there is an essential difference between the two options, and that there should be room in your budget for both. Saving is usually paying yourself first by taking a regular amount off your salary and placing it in a bank account every month, earning a small but steady return on interest. This will help you achieve your short term goals or help pay costs that may arise unexpectedly.
Investing is usually a long-term saving used for wealth building. It normally involves a larger sum of capital with the expertise and advice from an accredited financial institution.
Achieving financial freedom to change your life…Make your money work for you so that you can enjoy it! Save up for that new TV or holiday to reward yourself for a year of hard work. Occasional splurges keep your budget from becoming tedious and make you more motivated to cut costs elsewhere during the year – to be able to reward yourself later.
And when you do finally reward yourself, you can sit back and enjoy it even more because you embarked on your own personal savings drive today!