Everyone is good at spotting bargains, whether it’s the infamous BOGOF (Buy One Get One Free) or three for two offers, or clothes in the sale. What people are less good at is working out their cash flow and establishing what they might need over the course of a year, planning accordingly.
It goes without saying that buying things for cash, handing over used readies in the process, gives the best sense of what things are actually costing. It can also be sufficiently painful psychologically to ensure that your spending is limited. However there are times when using a debit or credit card is very useful, for example to take advantage of free guarantees or to keep a better record of when something was bought, in case it goes wrong. The way around this is to set yourself a regular sum for housekeeping expenses, and then try to stick to it. If you keep a cash book that is updated once a week, listing all purchases and expenses, you will get a clear idea of what money you have coming in and what is going out, which will help you keep on top of your finances and reduce the likelihood of frightening credit card bills in the future.
In this new age of austerity, you also need to put some money by in case of emergency. Many financial advisors would suggest that three months’ net salary is a useful goal to aim for. However for many people in the present financial climate, the emphasis needs to be on paying off debts rather than saving money, and a savings goal such as this is an impossible dream. Here is a three-step plan to financial organisation (with acknowledgement to my husband, who has been designated Head of Finance in our household while I am Head of Procurement – we found that having joint Heads of Finance just didn’t work).
PHASE ONE – RETRENCHMENT
- Pay off your debts in order, with the ones accruing the most interest being paid off first.
- Consider getting a second job such as babysitting, bar work, or taking in a lodger to speed this process up.
- Avoid consolidation loans without taking independent financial advice, as these may end up proving to be more expensive than you think, and also encourage you to carry on spending at the unsustainable rate you were before, when instead you should be calming your spending down.
- If you are having trouble meeting the minimum monthly payments on your credit cards and other bills, seek professional help or visit the Citizens Advice Bureau immediately, as this is very serious (not to mention worrying).
- Double check you are on the cheapest possible deals for gas, electricity and water, and pay by direct debit to get a discount if possible.
PHASE TWO – CONSOLIDATION
- Put a certain sum of money aside to cover things like: unexpected illness and dental treatment where the NHS doesn’t cover you, temporary loss of employment or late pay cheques, home repairs, Christmas and birthdays, holidays and day trips, school uniforms, replacing the car.
- Make sure you always pay any necessary taxes on time, to avoid heavy fines.
- Investigate life insurance policies and savings plans, with professional advice.
- Investigate pension options and make arrangements for retirement accordingly.
PHASE THREE – IMPROVEMENT
When you find you have spare funds, put aside a sum for investment – this should include high, medium and low risk options. The proportion of medium to high risk investments you hold in percentage terms should be 100 less your age, therefore if you are 35, 65% of your money should be in medium to high risk investments, and 35% in low risk investments. For further advice, consult the myriad of financial books on the market, or see an independent financial advisor.
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