The beginning of a new year can be a great time to take a close look at your finances. Taking the time to review your income and outgoings can help you set realistic financial goals and make informed decisions for the year ahead.
Here are some useful tips to getting started:
1. Get your paperwork in order
It can be difficult to get to grips with your finances when your paperwork is hiding in cupboards or hidden away in emails. It’s useful to collect your financial details in one place so that you can easily pull together a clear picture of your income and outgoings. No guesswork, just the hard and fast figures in front of you!
This could include wage slips, bank statements, credit card statements, any bills and receipts, digital or paper, and don’t forget those tax returns if you need to complete one.
Having these documents to hand will give you confidence and a full overview of where you are financially.
2. Calculate your total income
For many, your main income comes from paid employment detailed on your wage slip. You may also benefit from bonuses or have other income from an additional job or rental income if you let out a property.
Bringing together all of your income gives you a starting point for budgeting, so you can see what you have to spend and understand your ability to save.
3. Track your expenses
Document where your money goes, be thorough and list everything from gym memberships, what you pay for lunches, to living expenses like rent, mortgages or utility bills. Sort your expenses into fixed and variable costs to help identify those costs you can easily do something about and those that are harder to change:
Fixed expenses: these are essential outgoings such as rent or mortgage costs, utilities, insurance, loan repayments.
Variable expenses: Groceries, entertainment, dining out, travel.
Getting these costs visible is a great start. It can also be a good idea to use a spreadsheet or budgeting app to track these expenses over a few months to get an accurate picture of your spending habits which also gives you a template to revisit and review throughout the year.
4. Identify areas for cutting costs
Now you know how much money goes out. Is there anything you could cut out or cut back on?
Maybe you have a gym subscription you no longer use, could you swap branded goods at the supermarket for own brand? Consider shopping around for a better deal on your broadband or mobile phone contract. Are you heating a spare bedroom when you could instead turn the radiator off?
Even small changes could add up to significant savings over time giving you the opportunity and flexibility to focus on your financial goals.
5. Set financial goals
When you're setting financial goals, it's best to be clear about what you want to achieve and when you want to achieve it. It can be useful to define your goals as short, medium and long-term.
Short-term goals are considered those you probably want to achieve within the next year. These are often smaller, more immediate financial needs or desires. Building a rainy-day fund or saving for a holiday for example. Or you may want to clear off any credit card debt or loans you have. Getting on top of debt in the short-term frees up money in the future to save against your goals for the medium to long-term.
Medium-term goals are considered those you plan to achieve say in one to five years. These goals often require more planning and saving. The kitchen upgrade, a new car or perhaps you’re thinking of moving house.
Long-term goals are considered those that you aim to achieve in five years or more. These goals typically require significant planning and investment. You may be looking ahead to funding a child’s education or to support your savings for retirement.
Now that you have your goals in front of you, you can prioritise which are most important and focus on those first.
Having clear goals can help you stay focused and motivated.
6. Create a budget plan
Set a monthly budget that aligns with your financial goals.
Knowing what you need to meet your fixed expenses, and what is left for variable expenses, means you could be in a better position to see what you can realistically set aside for your goals. You may not manage to set money aside for all but now that you’ve listed and prioritised them, you’ll hopefully know which ones to focus on.
Remember, using tools like budgeting apps or spreadsheets to track your expenses and savings each month could be a good way to help ensure you stay on track. The Government-backed MoneyHelper website could be a good place to start Budget planner | Free online budget planning tool | MoneyHelper
(Just so you know, this link will open in a new window. It links to an external organisation and Scottish Friendly is not responsible for their content).
Try to stick to your budget as closely as possible. Sticking to a budget can be habit forming as getting on top of your finances and managing your money better can feel good.
7. Monitor Your Progress
Now you’ve done the hard part and can keep on top of it by regularly reviewing your budget and financial goals. You could schedule a weekly or monthly check-in to make sure your spending is on track to meet the goals you’ve set for yourself.
Life can be unpredictable, so remember to be flexible with your plan. If you encounter unexpected expenses, adjust your budget plan accordingly. The key is to stay committed and keep moving forward.
Taking these steps at the start of the year, could help you gain more control over your finances, giving you some financial wellbeing as you aim to work towards a more secure financial future. Remember, the key is consistency and regular review to help you ensure you commit to staying on track with your financial goals.
Scottish Friendly doesn’t provide advice. If you’re seeking advice, you should contact a financial adviser. Advisers may charge for providing such advice and should confirm any cost beforehand.
