Personal financial management is something that everyone wants to master, and to be honest, in order to reach your financial goals you need to be pretty good at it. The principles of financial management are easy to understand, but not simple to do. The reason it is not simple to do is that people are either lazy or reluctant to face their financial burdens. They only remain burdens if they are left ignored. In this article, you will learn the very basics of how you can improve your financial management. Please note that I am not a financial advisor, if you do take onboard this suggestions in this article it is of your own accord.
1. Analyse your account
The best way to manage your personal finances is to understand your financial behaviours. Understanding your consumerist behaviours will help you better understand what you may need to change. Self-awareness is key! There are a number of ways you can understand your financial position. Here are some ways people may adopt:
- The digital age has allowed for fin-tech companies to release apps that can link to your bank account and categorise and monitor your expenditure. You can then get a comprehensive understanding of where your money goes and what you may need to do in the future to improve your expenditure and budgeting. An example of this is Monzo
- Another way people could analyze their expenses and income is by tracking their invoices and receipts and doing a monthly/quarterly or annual summary of events. This may take a while, but if you’re not au fait with the digital world, this may feel like your only option
- The third option is to download a CSV version of your expenses and income and save it as an Excel statement and analyse it. This is useful for people who are strong with excel. You need to put each item into a category like food, business, bills, holidays etc. You can go on Money Saving Expert to find out how to categorise your expenses. The main thing is to where you spend most of your money, where most of your money comes from and what trends you can see over time
Determine what your seasonal or average income is, and what your seasonal or average expenses are.
2. Look at what you can get rid of
When you have this information, you want to start looking at what you can get rid of. Get rid of bills and direct debits that are not needed anymore or have been overlooked. Check to see if there are cheaper deals you can get with insurances, phone bills, gas etc. The best way to do this is to go onto all the comparison websites online such as compare the market, Go Compare, money supermarket, USwitch etc. People don’t realise that different comparison websites may show a cheaper deal for the same provider. This will take time, but it is worth it and could save you a lot of money in the long run
3. Create separate accounts
Have two separate accounts where one is dedicated to paying bills (your current account) and one is dedicated to disposable income (new current account). Your income from your salary would default into your current account, and a direct debit would be made into your second current account with the amount you have to spend for the month. You will know this figure from doing the first exercise above. With separate accounts, you can clearly define where money is going and budget accordingly. Please note that opening another account may affect your credit score, so take financial advice before doing so.
4. Make Savings… if you can
Before you save you should know why you’re saving. If it’s for a rainy day, should you forget it? That’s up to you. But there should be at a minimum an emergency fund used to help you out in difficult situations. Don’t be deluded though, emergency money can come in many different forms, i.e. credit cards, savings, investment, loans etc. it really is relative to your situation, but be sure to know you have options… If you do have a debt, then focus on clearing the debt as much as you can. You can use loan or credit card calculators online (or create one on excel) to calculate how quickly you can pay off a debt you are paying off. An additional £50 a month could make a huge difference! Make sure to check after 6 months whether you can reduce the interest on your debt, and learn to understand the full conditions of it. If you feel you need to consolidate your debt due to having multiple forms of debt, seek financial advice first. In the long-run, it may be useful to do but dependent on factors such as monthly payment and interest rates etc.
5. Check your credit
It is important to check your credit rating so you know you are on the good side of the credit and banking companies. Experian and many other credit checks companies are able to give you a comprehensive report on your credit score, based on the information you provide them with. If your with an account with Barclays you have access to Experian, alternatively you could pay the monthly fee of £14.99 to get your report. Nonetheless, it is a good idea to know where you stand, just in case you may need to ask for credit in the future for things such as a loan or mortgage
6. Seek financial advice
The final thing is to seek financial advice. The cheapest option is to book an appointment with your bank and talk about your financial situation from a budgeting/management point of view. As they are in your best interests, they are only representatives for the bank and may not have the financial savviness of an accredited independent finance advisor. Whatever option you take, financial advice from a professional is key to prospering in this game. A great person to get this advice from is Emmanuel Asuquo who is owner of the company Noir Excel, where he focuses not only on financial management, but also loans, mortgages, budgeting, wills etc. you can check out his website here. You can also check out the website www.moneysavingexpert.com when you can get awesome tips on money in general.
And that is it, 6 ways to improve your financial management for the coming year! Good luck and stay strong!