- Financial wellbeing
- 3 minute read
The beginning of a year is often a time to reflect and reset; with many people thinking about a fresh start and kicking off, in January at least, by giving things up - with initiatives like ‘Dry January’ and ‘Veganuary’ etc.
It’s the same with our finances. The start of a year is often a time for trimming our budgets to rebalance after the heavier expenses of December, and revisiting savings plans to refocus on new or changed goals. And with the cost of living rises still biting for many in the UK, this is also a good time to see what can be changed to make the most of the money you have.
If you are planning a finance refresh this year, did you know that there is a recommended priority order that may help?
1. Revisit your budget
Look at your bank and credit card statements over the last three months to check all outgoings. Are you happy with how you are spending your hard earned income, or are there some costs that could be stopped, reduced or paused? Even small changes on a few items can make a big difference to your overall budget.
2. Get debt in better shape
Borrowing money is a fact of life for most of us – whether we’re using credit cards, getting a mortgage or applying for a loan.
But debt can become deeply worrying if we lose the ability to pay it off, and debt issues only get worse if ignored. So if managing your debt becomes a problem, get help as soon as you can. There is a lot of free help available from Citizens Advice, StepChange and National Debtline - and never be afraid to ask for help.
3. Rearrange necessary costs
Necessary costs are those that you need to live; rent/mortgage, utilities, travel and food. Your existing providers may be open to arranging a better deal or a different repayment plan, so it’s a good idea to talk to them as well as using comparison sites to shop around and get a better deal where you can. It is recommended you use at least two different comparison sites, as some sites won’t necessarily show all providers or all deals. There are many comparison sites available, but sites such as Compare the Market, Go Compare, Money Supermarket and Confused.com are some examples. Other sites such as Money Saving Expert and the financial press may also help with explanations and top tips.
4. Reduce/stop unnecessary costs
Many of us subscribe to services and products that may no longer be relevant to our lifestyle. When reviewing your budget, this is the area where you can make a difference to your budget without it feeling like a loss to your quality of life.
5. Revisit savings plans
If you need to cut back on savings for a while to help get your finances on track, especially whilst managing higher costs with the cost of living rises, then this priority order is an approach to consider:
1. First, look at non-pension savings
It may be worth looking at reducing, or pausing, any regular savings for a short time to get your budget back into balance
2. Pension savings, step 1
Remember that when you save into your workplace pension, it’s not only your contribution, but your employer also makes a contribution, and you get tax relief on both. If you reduce your contribution then you will also miss out on that ‘matched’ element of employer contribution and tax relief. So, if your budget tells you that you have to reduce your pension savings, first look at only reducing your contribution to the level where you still receive the maximum employer matching
3. Pension savings, step 2
If you do need to cut your savings further, and only after the other two steps, consider reducing your pension contributions below the level that ensures maximum employer contributions. However, this will impact your longer term savings plans, and in this instance you are giving up the opportunity of free money from your employer
With all savings cuts, ensure you use a savings/pension modeller to see the actual impact on your own budget, and also to see the impact this will have on your future savings plans.
As for all lifestyle changes, keep checking on your progress by looking at your budget regularly and see if further tweaks will be beneficial. And if there’s something you need support with, don’t delay in getting help.