According to a recent survey by YouGov (commissioned by the Institute of Financial Planning), only 14% of people have put plans in place to work towards their financial goals (a drop from 19% last year). This is despite nearly 60% of respondents reporting that they are worried about their finances.
Now, you may find that you are worried about your financial situation, especially after the recent spending at Christmas and in the sales, but the solution is not to put your head in the sand and hope that things will get better. Therefore, here are our 7 top tips for financial planning:
- Don't put this off Most people procrastinate over financial planning issues for a number of reasons: they don't want to know the truth, they are worried about money, or they think it will be hard work. If you don't start now, when will you start? Solution: set yourself some goals for your financial planning. They could be anything which is important to your life such as clearing Christmas debts, paying off the mortgage, saving for a holiday etc.
- Understand your income and expenditure This is fundamental to your financial well-being. If you do not understand what is coming in and going out each month, the chances are that you are over spending. In time this could lead to debt and stress. Solution: Go through your bank statements and set budgets for your key areas of expenditure. Whatever makes sense to you.
- Understand what's in your financial pot Draw up a list of your financial assets, as well as your debts. This will help you to think about how far you need to go towards your financial plans. Solution: create a list of your assets and debts. This will help you to work on growing or reducing these items.
- Build up an emergency fund Most people do not have enough in savings to cover them if something happens which means they need money urgently. You need to have at least 3-6 month's worth of expenditure put aside in an instant access savings account. Solution: work out how much you have put aside in instant access accounts (not longer term savings or your current account). If you don't have at least 3 months of expenditure put aside, then work on getting to this figure.
- Think 'what if' No doubt you insure your car and your house contents, but what would happen if you or your partner dies, get sick, or loses their job? Think about the consequences in these situations. You need to build a plan for how you would cope financially if the worst happens, and this may include insurance. Solution: put together a schedule of insurance for these scenarios, and think about how much cover you might need on top.
- Pay off those debts as quickly as you can afford When you become debt-free your finances will be in a much stronger position. think about all the added expenditure this creates, as well as the added cost of those items you purchased long ago. Solution: work towards paying off the most expensive debts by interest rate as quickly as you can afford. Put together a list of unsecured debts like credit cards and loans, and work on a budget to overpay until you can pay them off.
- Put money aside for the future Start on this one if you can say you have done all of the above to some degree. It doesn't matter if you start small, since it all adds up, and you can always increase your savings later.
