With an air of uncertainty around UK economy at the moment, the spotlight is firmly set on finance right now. It’s a good prompt to think about the benefits of making sure you have control of your personal finances, the benefits of taking control now might mean the difference between a little extra cash for everyday luxuries, a holiday or even a boost to your pension. So, if you feel like your finances are spiralling out of control, you want to start a savings plan, you don’t have a clue where you stand with your finances or perhaps they just need a little bit of a declutter then these five steps to better finances will give you a great place to start managing your finances like a pro.
- Become an expert on your own finances.
You need to know where you stand financially before you can progress so, first up you must do a comprehensive list of your income and outgoings. Once you have this to hand start a list of any debts you may have, including the total debt and the amount of interest charged on each account. Then you need to look at creating a realistic and truthful budget. There are some good tools on sites like moneysavingexpert.com for your income and outgoing that will also help you set your budget and there are some good sites out there to get a free credit score report that will not only show you how you are seen to lenders but will give you a list of your debtors, often including their contact details if you need further info from them.
- Reduce interest payments.
With your list of debts in hand, take the loans and put them in order of highest to lowest interest rate. Start by tackling those with the highest interest rates, the sooner these are paid off the more you save. If you have savings, consider using some of them to pay off your debts. If the interest rates looks particularly high and you have a decent credit score, use a comparison site to find a better deal and pay off the high interest loan with a lower rated one. An alternative to another loan would be a low interest credit card, this will work particularly well if you have an excellent credit score as you could be in a position to get a 0% credit card and reduce interest repayments to nothing, whilst you repay.
For most people their mortgage is the biggest debt they will ever have and it often takes quite a chunk out of our income at the end of the month. So long as your mortgage doesn’t come with hefty exit charges, it could save you a good some of cash, especially if you are on a standard variable rate mortgage when there are good fixed, tracker or discount mortgages on offer. It might also be worth remortgaging if the value of your property has rapidly increased in value, so if this is the case its worth doing some research on the matter. Another thing one can do is take out a reverse mortgage. This is where you free up some of the equity in your house in order to have money to spend elsewhere. It is popular for allowing people to continue to live in their home once they retire and they may not otherwise have the funds to do so.
- Get credit card savvy.
If you have credit rates, the first things to think about is if you know the APR you are paying for each card. If you don’t find out! Then with armed with your credit score do some research into the lowest interest rate credit cards you may be eligible for, you might find you can get a card with a 0% balance transfer for a short period of time. If you can it’s most definitely worth switching and then ensuring you keep switching before the 0% balance transfer window is closed (if it isn’t already paid off). If switching and keeping this in touch with your finances just won’t work for you, switch to the card with the lowest ongoing rate you possibly can.
- Save, save, save.
Now, obviously we would all love to have a little extra to save for holidays, one off events and luxuries, but saving for emergencies so that you have an emergency funds pot can make a massive difference to your finances. When an emergency happens, especially a home or vehicle emergency that affects our everyday life, it becomes extremely tempting to reach out to the lovely people at loans companies. Often we need that money fast and that means high interest quick loans. Having an emergency funds pot means not only means there will be less of a panic buy if an emergency occurs, but that you’ll only be borrowing from yourself, so no interest! In fact whilst your fund is growing, if it’s in a decent savings account you might actually get a little bit of interest paid to you!