Happy New Year, as we are now 6 days into 2020 we thought it might be useful to discuss financial goals for the year ahead. Financial goals like most other goals are very personal and subjective to individual circumstance, and therefore this post will aim to address a number of different starting points and circumstances:
- Have no savings.
- Have debt.
- Have Savings with no debt.
The financial goals and advice provided here should not be taken at face value and you should always do your own research and take account of your own financial health.
Have no Savings
If you are in a position where you are spending all your income every month but still within your means this is both good and bad. Good because you are not accumulating debt, bad because you are not saving or investing. Start by saving for an emergency fund.
This first thing you need to do in this situation is to examine your spending habits to establish where your heard earned money is going. Only then can you start to write (yes write) a detailed budget. By writing a budget you are able to visually see where your money is going and therefore aid in financial management.
When looking at your spending habits you need to ask yourself why you are spending money on ‘things’, do you need these ‘things’ and could you better use this money elsewhere. Take for example, you spend £7.99 every month for Amazon Prime, but you rarely order or use the membership benefits. While you probably wouldn’t notice this coming out of your account every month, annually you are spending £95.88.
- Examine your spending habits and write a detailed budget.
- Identify expenses you can cut.
- Save the money in an instant access savings account, aim for at least £1,000.
Have debt – credit cards, personal loans, car loans
If you have debt, the first question you need to ask yourself is why. Why am I using a credit card? Having small amounts of debt is not necessarily a bad thing, provided it is useful i.e. building your credit score. However, large amounts of debt quickly become a drag on your financial health.
To start, you need to know where your money is going. As with above, examine your spending habits and understand where your money is going. With this you need to write a detailed budget outlining your income, expenditure and your debts. List your debts from the smallest to largest, this is the order in which you will tackle them.
However, before you start paying down your debts you need a financial cushion – an emergency fund. Life happens and unexpected expenses do occur, therefore you will need an emergency fund of at least £500 but ideally £1,000. Only after you have an emergency fund in place should you then begin to tackle your debt.
- Examine your spending habits and write a detailed budget listing your debts smallest to largest.
- Build an emergency fund of at least £500 but ideally £1,000.
- Start to pay off your debts starting from the smallest using all the spare money you can find.
- Be debt free!
Have Savings with no Debt
If you have some savings and no consumer debt – Brilliant! You are already above average, but you are not finished yet. As with all things there is always room to improve. If you are at this point financially, hopefully you are working with a detailed budget and are aware of where your money is going, if not – write one!
As always make sure you have an emergency fund, because life happens. If you already have £1,000 saved aim for at least 3 months of expenses. This will give you a lot of security in the event that your lose your job.
Once your emergency fund is fully funded you can start to think about whether you want to save for a mortgage deposit, start investing or extra contributions to your pension. If you have children, start putting some money away for their future.
- Fully fund your emergency fund to at least 3 months of expenses.
- Save for a house mortgage deposit.
- Start investing and do additional contributions to your pension.
- Start saving for your children’s future in a Children’s ISA.