If your list of New Year’s resolutions is similar to many others, it probably includes saving more money. But, like vowing to get fit, this one is easy to fail at, especially if the plan of action is a little vague.
Success is much easier if you have a plan to follow. So, to help you get on the right track, here are seven ways to change your financial situation in 2017.
Split your income and outgoings into percentages
It sounds simple, but going back to basics and actually sitting down and working out what income you have coming in, and what is going out, will give you a clear picture of what is left over to enjoy or save.
Consider all your bills,â€Šincluding rent or a mortgage and utilities;â€Šthis may eat up around 50% of your income. Then there is your mobile phone, petrol, broadband, food and other subscriptions to think about, which are perhaps another 20%. That would leave you with close to a third left over. You may decide to put 15% straight into savings and keep 15% for miscellaneous spending such as eating out, shopping etc. Some bank accounts will automatically transfer money into your savings account at the end of the month if you ask them to, which allows you to build a savings fund without thinking about it.
Tackle any debt
This one always tops the list, and for good reason. Loans and credit cards often have high interest rates, making them incredibly expensive. Once you get rid of them you can use the money previously spent on repayments to put into savings and investments, so clearing them should be a priority to have greater control over your money.
Quick and effective ways to help you clear debts faster include consolidating multiple debts, reducing your interest rate by switching to a different provider, and avoiding making the minimum payments only.
Put money away straight after you have been paid
If you earn £10 an hour, every £10 you spend is one more hour that you have to work before you can retire. That’s a pretty big incentive to save!
Many people try and save at the end of the month, hoping there is enough left after bills and spending. The problem is there usually isn’t money left – when we consider it available, it will be spent!
To overcome this, pay yourself first. You can put the money into an easy-access account so you can use some of it if absolutely necessary, until you adjust to having less to spend.
To really make the most of savings you will want to get the highest interest rate possible and not lose the growth to tax, so high interest accounts and ISAs should be considered.
Don’t forget about your pension
Pensions are perhaps the most efficient savings vehicles of all, offering not just tax-free growth but also tax relief on contributions and employer contributions in workplace schemes.
This means if you are a basic-rate taxpayer and earn £100, you will receive £80 after tax. If you put that into a pension, it would be topped back up to £100 and in a workplace pension it could become £200! This supercharges your saving efforts and can make a huge difference to the eventual size of your fund. Better yet, thanks to the new pension rules the money can be accessed in full from the age of 55.
Considering switching service providers
In this age of digital banking and direct debits, much of our spending is automated and it is easy to overlook where money is going. Looking into switching utility, mobile phone contract and broadband providers could save you considerable sums across the year.
There are often good deals in the new year, but do check renewal dates as some providers charge an exiting fee.
Plan ahead for bigger expenses
Some expenses in life are unexpected, but there are others that we know are coming. Christmas happens at the same time every single year, as do birthdays, anniversaries and even renewal dates for car tax and insurance. With a full 12 months’ notice on these, why do we wait until the last minute and then panic about the expenditure?
To break the cycle, spread the cost over the year.
Decide how much everything may cost you across the year, and divide that number by 12 to see how much you need to set aside each month. This way you will always have the money ready, removing one of the main temptations to spend on a credit card. It’s far better to set aside £50 a month for everything, than have to raid the savings for several hundreds of pounds when times are tight!
Find out more at Portafina.co.uk.
Last modified: June 10, 2021