Time to get honest and clear those financial skeletons out of the closet!
Paying the bills each month? Yes. Saving for a pension? Yes (well, maybe not enough) Putting money into a rainy-day fund? When I can. Maybe you have an idea how much money will cover your financial need each month but there is more to it than that.
Have you looked at your spending and goals and been completely honest with yourself? Has your partner been honest with you? Have you been honest with each other? Do you have spending and saving goals?
Most people are better at hiding from financial realities than facing them. The good news is that you can get your head out of the sand by answering five simple questions and the result is a personalised and far more beneficial financial grounding.
Am I on top of my spending?
Do you know what you spend your money on? Budgeting is almost always a blind spot. Most can’t quantify what they spend their money on and do not have the appetite to do so. This isn’t about cutting the things you enjoy from your spending. It’s just about being super clear on where the money goes.
The general rule of thumb is that people spend what they earn. Unfortunately, this approach means that as you earn more you spend more – instead of buying your clothes at Top Shop, you graduate to Zara and so it continues.
Working out how you spend is so important if you really want to start making your money work for you.
You can track your spending on paper, in an Excel spreadsheet or download an app and track what you are doing that way. If you are not saving, then you will find this exercise can help you see how a few small changes can soon make a huge difference.
What can I do to improve my income?
Getting clear on your spending is not an exercise in cutting back. If you invested in yourself, would it allow you to build your career? There are many free courses available online. Would this allow you to increase your income? This may be a more effective route for you than reducing your costs.
If you have existing assets don’t let them sit around in painfully low interest savings accounts. Check out savings rates online. Which accounts offer a much higher return in the first year? With interest rates so low in the UK returns really can be next to nothing. ISA’s may no longer be the best return on your money. Shop around.
Make sure you take full advantage of any tax breaks on your savings. It all builds up.
What do I want to do?
Money is a means to an end, so what do you want it to do for you? Is it retiring early? Paying for your children’s education, working your way through a bucket list?
Understanding what matters allows you to begin with the end in mind. Money loves clarity.
Clarity makes achieving short and long-term goals so much easier. Those lack-lustre meals on the way home from work may be an easy choice after a long day when you are tired. Cutting them out, or down by 80% may mean you can afford a luxury holiday this year.
Would I be able to survive on less money?
The context here is twofold. Firstly, have you thought about risk? Not an appealing prospect I know but what if you lost your job, become ill or died? Have you thought through the consequences? How long before the money runs out?
Secondly, are you saving enough for the longer term? Would you be happy with a drop-in income later in life? If you need to bridge the gap and save more, think of it as paying yourself before you pay Zara, Amazon or John Lewis, for example.
Why is money important to me?
Getting a little bit deeper and really peeling back the layers when answering this question will help you get in touch with your feelings, beliefs and values around money.
These will be unique to you and well worth exploring as they will help you to determine your financial goals.