Q I really need to sort out my finances. Where do I start? What should I do?
Now is a good time to spring clean your finances. You should start by working out where you stand financially. Get out your paperwork and try to answer these three questions:
- How much money do you have?
- How much debt do you have?
- Are you spending more than you earn?
The first two questions may not take too long to answer – it depends on how much paperwork you have. The third question could take longer.
If you haven’t been keeping a record, don’t worry just start now. Note all your spending for the next month, right down to a Mars bar. Then in a month’s time, you’ll be able to see where your money is going and you’ll should some areas where you could cut back. Let us know if you need help and we can send you our handy tracking sheet.
If you don’t have a spending record right now, don’t’ worry. You can still get cracking today on these 5 steps today.
1. Let’s start with the painful, but very important subject of debt.
If you have any debt beyond a mortgage, perhaps a loan or credit card, you should focus on paying off this debt as quickly as possible. Try to convert high-interest debts into low-interest debts too if you can.
Moving onto mortgage debt, if you have a tracker mortgage you’re paying a pretty low interest rate at the moment, if you don’t have a tracker, there’s no harm in seeing if you could get a lower rate than what you’re paying. Ask your local Financial Broker for a review.
Finally, if you’re really struggling to pay off your debts, you could get free advice from MABS or your local fees Free Financial Broker. You may find that your debt situation isn’t quite as bad as you thought.
2. Cutting your spending makes sense for most of us. Even if you’re already spending less than you earn, some spending cuts could boost your savings.
Make sure that you’re getting the best deals on all your insurances as well as your bills. Also compare your mobile and broadband bills with what else is out there.
The easy mistake with all these bills is to sign up for an attractive new deal and then forget about when that deal expires. If you don’t keep track of where you stand with all these suppliers, you could be automatically renewed onto much less attractive tariffs down the line.
3. You could also think about whether there are any ways you could boost your income. That could mean trying to get a second job or you could rent a room and get a tax-free second income.
4. Make sure you’re making the most use of your tax breaks.
5. This is probably the most important point of the article. Once you’ve got a spending record, you can draw up a budget for your future spending. Set tough but realistic targets and make sure you’re spending less than you earn.
Perhaps you’ve drawn up a budget before but struggled to stick with it – hopefully we can make it easier to do that. And once you understand your whole financial situation, you’ll find that you have a bigger incentive to stick to the targets in your budget.