We’ve all seen the new-year-new-you clichés but if you want to manage your money better in 2020, where do you start?
Clearing debt
Post-Christmas credit card
Nothing says Christmas hangover than a larger than life credit card bill. We recommend tackling any outstanding balances on your credit card before prioritising saving. The best practice is to pay your credit card as soon as it comes in but if you’ve been splashing out for Christmas on the plastic, you may not be in a position to do that. Pay off as much as you can afford while keeping some money at your disposal to see you to payday. Clearing or reducing your credit card only to load it up at the end of the month could put you in a vicious circle. If you can’t pay the card off in a couple of months, consider using interest-free switch deals.
Loans & other debt
Aside from mortgages and student debt which are paid back over the long term, working out how much you owe and how much you can afford to pay back will help you establish when you will be debt free.
If you have short term loans, then look to clear the highest interest ones first, make a plan and clear them, short term lending can be really expensive. If you have other loans, make sure you understand the term and have sufficient money to meet the monthly repayment.
Having a plan to clear debt, and not create more is the best way to start planning for your future.
Back to basics
Budgeting
Managing your money comes down to knowing how much is coming in and how much is going out. The boring bit is keeping track of it. We have a budget calculator to help you. Keep track of the essentials, the extras and the “could-do-without” expenses will make it clear to you where you can make some changes. It’s not fun but if you put your head in the sand, you won’t get the chance to get more from your money.
Emergency fund
One last “boring” bit before you can start thinking about having fun with your money is an emergency fund. What would you do if your car failed its MOT? You were off sick and don’t get paid? You had to replace a broken TV?
Ok so you might be able to sort out the last one in the January sales without too much purse pinching but unless you have a magic pot of gold, the others will need to be paid somehow.
We advise that people have an emergency fund to cover the cost of at least three months’ worth of essential expenses (see the budgeting section). From your budget record, you should be able to work out how much this would be and how much you can set aside every month. Making saving a habit is the best option, work out what you can save, arrange a regular payment from your current account into a different saving pot. This means you will have specific money for the proverbial rainy day.
Putting the fun in fun-d
Have some fun
Now you’ve cleared your credit card, sorted your loans and organised your emergency fund; this is where things start to get fun. Let’s think about what you want to do in the next 5, 10 or 15 years? Owning a house? Three months saving turtles in Costa Rica? Or calling the shots in your very own practice?
Whatever your dream is, whenever it is, you need some money behind you. Put together your priority list, work out how much you think you need and how much you can afford to save or invest.
If you want to achieve your goal in the next seven years, we recommend you consider cash savings accounts. If the dream is more long term, think about investing your money. To see the difference you can watch our video.
Either way, if you want some help with where to put your money, call us and we can talk you through your options.
The Actual Financial New Year – 6th April
While the rest of the world might be celebrating the New Year on 1st January, the real party starts on 6th April when we press reset on ISA and Pension Annual Allowances. Yes we really do get excited about this!
Before the 2020/2021 financial year starts, make sure you have used your allowance for the current 2019/2020 year first.
As well as starting the Financial New Year off well, you also want to make sure you use up your current allowance by April 5th.
If you’re not sure whether you’ve reached your limit or you want to make sure you make the most of it, as a BVA member, you’re entitled to a complementary financial review with one of our Independent Financial Advisers. You can arrange a telephone or face to face meeting with them.