With the new year comes a new start for your finances. Working towards the five financial goals below will allow you to regain control and set yourself on track for a fantastic financial future.
Overview
Get Your Debts Under Control
For those who owe money on credit cards, or are paying for an unarranged overdraft, the most important financial goal is to make sure you have a plan to get back to 0. While you’re in debt compound interest works against you and increases the amount you owe, so the quicker you pay it back the less you’ll end up paying in total.
The Money Advice Service has a comprehensive list of places you can secure free debt advice. Depending on the severity of the debt this may be an informal plan you create yourself or a formal Debt Management Plan agreed between yourself and your creditors. It’s also worth contacting your bank as they should discuss options with you to ensure you’re not stretched beyond your means. In the meantime avoid adding to your debts by reducing your outgoings. For those who have the option you may wish to consider temporarily moving back in with your parents. Rent is often the biggest expenditure so it can be a quick win to get your debts under control.
UK student loans are already a form of managed debt so don’t worry about paying them off early. In fact you should avoid doing so. The majority of people will never pay off their loan in full so the interest added is irrelevant. For now I’d suggest disregarding the amount you owe and instead view the future repayments as a graduate tax.
Open a Savings Account and Pay Yourself First
I’ve met many people who live paycheck to paycheck, running out of money at the end of the month and consequently leaving no money left for saving. But whether you want to save towards a big goal such as a housing deposit, or a smaller goal like a holiday, it’s important to get in the habit of paying yourself first.
Check out some of the top providers listed here and open up a savings account. Alternatively you may wish to consider investing if you’re open to risk and happy to grow your money over a longer period of time. For those of you who are looking to save for a housing deposit open a LISA to gain an extra 25% towards the amount saved. Once your saving account is set up you should create a monthly direct debit from your current account to your saving account which will go out just after you’re paid. You can always start small and build up the amount gradually. Even £50 a month will grow to £600 in a year. You’ll find that you quickly adjust and likely won’t even notice that the money has gone.
If you’re struggling to live within your means and want to work out where your money is going each month check out my post here.
Build Up an Emergency Fund
The problem with living paycheck to paycheck is that if disaster strikes you have no safety net in place. You may be able to turn to your family or friends for support, but it can add a lot of additional stress to an already stressful situation. Emergency funds are the main reason I believe everyone should save. You don’t want to have to add money troubles to your list when you’re already under pressure. I myself was made redundant back in 2014 but thanks to living with my parents I was able to view it as an opportunity rather than a crisis. This allowed me to remain calm and seek out a better position rather than jumping into the first job I could find.
Work out your monthly outgoings and aim to save enough to sustain yourself for the following periods of time. You can build this up gradually so don’t worry if even one month seems a long way off, the important thing is to make a start.
- 1 month
- 3 months
- 6 months
Make sure to keep your emergency fund in a separate savings account and avoid using it for day to day necessities.
Maximise Your Pension
For those in employment try to make 2018 the year you maximised your pension. Companies will often match what you save, effectively allowing you to save more for free! Where possible try to save up to the threshold your company will match to make the most of this benefit.
Pensions can often seem irrelevant when you’re young, but it’s a great idea to start early for the reasons below.
- Saving More Now Allows You to Save Less Later – While compound interest works against you with debts, it’s a great thing for those with savings. It’s effectively interest on interest and over time it means your savings increase exponentially. You can watch a video on this here.
- You Don’t Miss the Money – Most people new to the world of work could afford to put 5% (or even 10%) of their wages into a pension with no real impact as you won’t have changed your lifestyle to fit the amount you’re earning. For those already in work you could use your next pay rise to do the same. If you don’t get used to spending the additional money you won’t find that you miss it! Start saving early as it will become much harder to make the adjustment when you have the commitments of a family or mortgage.
- It’s a Free Pay Rise! – Many employers match pension contributions above the legal requirement. Make the most of these benefits as they’re effectively a pay rise.
- You Get Tax Relief – For a basic rate taxpayer this means for every £80 you invest, an extra £20 is added in tax relief. This has an even bigger impact for those in higher tax brackets.
| Basic Rate | Higher Rate | Top Rate | |
|---|---|---|---|
| You Pay | £80 | £60 | £55 |
| Tax Relief | £20 | £40 | £45 |
With people now staying in companies for shorter periods of time you should make the most of any benefits now rather than assuming you’ll always have the option available.
Track Your Money On a Regular Basis
When I moved to London from Cardiff around 18 months ago I had to adjust to higher rents which meant my savings weren’t going up at the rate they had previously been. Combined with several holidays it often felt as though I was working just to pay for a roof over my head. This was far from ideal when I typically work from home and could have been living anywhere.
I first took a look at my monthly expenditure and then started keeping a monthly track of my finances to allow me to work out how much my savings were increasing each month. Not happy with the results I made the decision to switch to a houseshare to help boost my savings.
Spending 30 minutes tracking my finances is one of the best things I did in 2017. It allows me to gain a sense of perspective with my savings and have a greater sense of control. Knowing how my money is distributed allows me to work out if I should switch to higher interest accounts, while monitoring the average growth allows me to set achievable financial goals. If you’re not happy with the results it can also provide you with the impetus to change your situation.
Do you have any other financial goals for 2018? Let me know in the comments?
