We all know that the New Year is the perfect time to review your finances and set new goals for the year ahead. In case you missed your planning session on the first day of January – here is another chance! This is a great time to get clear on what is going on with your finances.
If COVID-19 has taught us anything, it is that unforeseen emergencies occur, and without proper planning, your budget could fall apart should an emergency arise.
We have listed our Top Tips below:
- Conduct a ‘stocktake’ of your current position:
Over the Christmas and holiday period you can spend and splurge. It is therefore vital to do a general ‘stocktake’ in the New Year to know exactly how you are tracking toward your financial goals. Remember, It is much easier to get where you want to go when you already know where you are!
Tip: Prepare a simple spreadsheet, list your assets and liabilities, and see what your equity position looks like.
- Pay down your non-deductible debt:
If possible, 10% to 15% of your income should go toward reducing your non-deductible debt. There are a few options for managing debt and it is worthwhile considering consolidating your debts.
The only way that you are going to reduce your debts and get clear on your saving goal is when you accept you need a realistic weekly, monthly, and annual budget. It takes time to develop a budget that works; and it changes along your income and your needs. But it’s essential to keep at it. Once you have got it right, your debts will come down quickly.
Tip: Clear your debts before saving. While this takes some discipline, the interest rates on savings accounts are much lower than credit-card interest rates – other than very special card deals. This means that you’ll be debt-free a lot more quickly if you clear your card debts before you save.
There is of course an argument for a reserve of savings before you’ve cleared your credit cards as it helps you build a savings habit. However, the numbers don’t support the argument, so we still advise you to eliminate your credit card debt first.
- Create a Budget:
The greater your understanding of your personal spending patterns the easier it is going to be for you to take a commanding role in the management of your money.
All businesses and practices have a clear understanding of income receipts including the sources of revenue and have a clear understanding of the expenses over the year. The problem is, even in the cases where a business or practice budget exists, personal income and expenses can remain a mystery! At the end of the year most people simply don’t know how much money they spent on clothing, on food, on utilities… no idea!
The pattern-breaker for this type of behaviour is as we have discussed to complete a personal budget. It has nothing to do with changing your income and spending patterns; that will come later, it has everything to do with KNOWING where your money comes from, and where it goes to.
Prepare a personal budget and do it now. If there are any numbers that you are not sure of, you can estimate or guess and go back and confirm later. The main thing is to get a first run-through to get a personal profile and get a grasp of your finances.
By completing this exercise, you will immediately put yourself in an elite minority of people what can account for their own personal finances.
Tip: Ask our team today for the Locumsgroup downloadable template budget firstname.lastname@example.org
- Do a weekly check in with your accounts:
A great habit to get into is to allocate time in your diary each week and review your weekly expenses. You will gain a greater understanding as to your spending habits and ensure you are not spending on things that can’t be accounted for.
Tip: When creating an annual financial plan, create quarterly milestones. These will allow you to benchmark how you are tracking with your progress. If that doesn’t happen then readjust the plan, move the goal, or play catch-up.
- Create an internal dialogue with yourself:
Every time you go to make a purchase that is outside of your general expenses, ask yourself, “how does this fit in with my financial goals?” This is a great way to keep yourself accountable on ad hoc purchases that may come up and be a distraction.
Tip: Be accountable to yourself for discretionary spending.
- Establish an emergency Fund:
If you haven’t already done so, it’s important to establish an emergency fund. It’s also worth adding in an estimated cost for emergency expenses such as to car repairs or a new hot water heater! It’s better to overestimate than underestimate, so be generous.
Tip: Your emergency fund should be at least 2 to 3 months’ worth of expenses (or access to credit for a similar amount). This fund may take a while to establish but will be worth it in the long haul.
At Locumsgroup, we assist in creating financial freedom for our clients. As part of that process, we will complete a personal budget for you, so you have a clear picture of your cash-flow profile. This will assist you in taking control of your financial life.
If you want to take the steps towards financial freedom, then contact us for a complimentary consultation.