Six financial steps you can take today, that will help make sure you’re ready for anything that comes your way.
Money may not buy you happiness, but good financial health can certainly go a long way. Being on solid financial ground gives you peace of mind and makes it easier to deal with the unexpected twists and turns life can throw your way.
Here's what you can do today to better manage your money, future-proof your finances and set yourself up for financial success.
1. Stay on top of your spending
Budgeting may not be that exciting, and it can seem pretty overwhelming at first. But while it won’t be winning a popularity award anytime soon, there’s no denying that it’s good for you. Making a budget that you can stick to will help stop you overspending, making your life easier now. It will also help you to prioritise the future and make sure you’re putting a bit of money away into your savings.
The key is to strike a balance. On the one hand, you’ll want to cut down on unnecessary expenses and be more mindful of how much you spend and on what. At the same time, you’ve got to be realistic and a bit flexible with it. It’s pointless to budget £50 a month for transport when you regularly spend more. And make sure you remember to enjoy yourself and set up a ‘fun fund’ for the odd treat here and there.
Once you’ve made your budget make sure you take stock every so often. Reviewing your outgoings every year can help you take advantage of the best deals out there.
This is especially important for larger outgoings such as utilities, broadband, your mobile phone contract and even your mortgage.
If you’ve taken out a fixed-rate mortgage, when the fixed-rate period is up, you’ll be switched onto a standard variable rate. This can often be a higher rate, so it’s worth considering your options. You might find that switching to a new deal could save you money.
Gas and electricity providers regularly bring out new deals. You could switch provider or potentially move onto a new deal from your current one. Comparing the market and applying to switch, takes less than ten minutes and could save you over £300 a year.
2. Use credit little and often
Whether you’re looking to get on the property ladder, start your own business or buy a new car, you may need to apply for credit at some point in your life.
If you’ve never bought anything on credit, then you may find it tricky to get your application approved. This is because lenders want to see evidence that you’ve handled credit responsibly before. If you have no prior history with credit, it can make things tricky.
That's why it's important to start building up a positive credit history now.
One way you could do this is by getting and using a credit card. Making small purchases regularly, and, more importantly, always paying your statement on time, can help build up your credit score. Used responsibly, it shows lenders that you can handle debts well.
By establishing a really positive credit history now, it can improve your chances of getting that loan or mortgage in the future. It could even save you a lot of money, as you may be offered better terms.
3. Stay on top of your debts
If you’re not careful, debt has a way of spiralling out of control. Stress and financial hardship aside, regularly missing payments can eventually damage your credit score and harm your chances of getting more credit in the future.
Good budgeting goes a long way towards ensuring you don’t have more debt than you can handle. However, you also have to make sure you pay your bills on time. A good way to do this is to set up a direct debit for repayments. These take a few minutes to set up and automatically transfer the money to settle your bills.
If you’ve built up a lot of debt, focus on repaying priority debts first. Not paying these can have serious consequences like home repossession or a court order. It’s generally a good idea to pay the most expensive debts first (the ones with the highest interest rates). You may also want to think about consolidating your debts if it will make them cheaper and easier to manage. You can do this by using a balance transfer card to make it easier to manage.
Here’s some more information on how to deal with debt.
4. Build a rainy day fund
If there’s one thing you can expect from life, it’s that things have a way of cropping up unexpectedly. But while you can’t always control events, you can definitely cushion the financial hit with a rainy day fund.
A rainy day fund should ideally have about three to six months’ worth of essential outgoings. There should be enough to cover rent, utilities, living expenses and emergencies. Keeping it in an easily accessible savings account means you can access the money at a moment’s notice if you need it.
How much money you regularly set aside for this really depends on your personal circumstances. What’s more important is that you actually get started. Every little helps. You could save £730 a year just by putting away £2 a day - less than the price of your daily coffee.
5. Start saving for retirement
Retirement may seem like a long way away. But the sooner you start saving for it, the better off you’ll be.
If you’re in employment, your employer may have to automatically enrol you into a personal pension plan. In this case, your contributions are regulated by law. If you’re self-employed or not entitled to a workplace pension, you’ll need to make separate arrangements.
In general, you should aim to save a percentage of your income equivalent to half your age. So if you’re 30, this means paying in 15% of your income over the year. This means your contributions should increase as you get older. Starting early allows you to get away with smaller contributions, because you’re investing over a longer period. And the earlier you start investing, the more time your money has to grow.
6. Check your credit report regularly
Last but not least, the information in your credit report can influence your ability to get credit, so it makes sense to keep an eye on it to make sure it’s the best it can be.
In particular, look out for any mistakes and fix them as soon as possible. You should also look out for any activity you don’t recognise, as this may potentially be a sign of fraud.