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When it comes to your money, clarity is power

If you know your numbers, money isn’t as complicated as you might think. Clarity gives you the enthusiasm to make better decisions and live the life you want to live.  I often refer to ALIE as every financial planners best friend; assets, liabilities, income and expenditure.

The last 18 months may have played havoc with your finances, but this period could also be giving you more of something you don’t typically have: time.

If you’ve been furloughed, or you’re saving hours in commuting, use the extra time productively to sort your finances out.

The hardest step is the first one – so where should you begin?

Get organised

Start by working out what’s coming in and what’s going out. If you’re struggling financially, or anticipate you will be soon, it’s so easy to bury your head in the sand and ignore the problem. It’s also the worst thing you can do.

List out all of the money coming in and going out every month (some of the online-only banks can automate this process for you) so you know where you stand. You might even find Direct Debits for things you stopped using long ago!

Next, look at what you owe and what you own. If you’ve got outstanding debts, write them down. Make sure you’re on the lowest interest rate you can get by contacting any credit card providers.

Finally, don’t forget to organise what you own, including which companies your pensions are held with.

Cut outgoings

Go through each item of expenditure and ask yourself three things: do I need this? Do I want this? Can I get a similar experience for less?

Unless you plan to rely on savings, you’ve simply got to have more coming in than going out. If you’re taking a financial hit at the moment, that might mean making tough choices and some cuts you don’t want to make. Your TV subscriptions might need downgrading, or that phone upgrade might just have to wait.

Remember this isn’t forever, it’s to get you through uncertainty until you’re back on an even keel.

Increase incomings

At the same time, think about any ways you can improve your earnings. Most of us have spent a lot of time lately going through our things – thanks to the likes of eBay and Facebook, it’s never been easier to sell unwanted items online.

If you’re on a modest income, have lost your job or have children, use the website entitledto.co.uk to check your eligibility for any benefits. It’s a great resource that may surprise you.

And you could also consider any online training or upskilling you could do to improve your salary in the future, or returning back to full time education using the Advanced Learner Loan www.gov.uk/advanced-learner-loan

Armed with information, you can improve your financial position and make your future better than your past.

For more money planning ideas search for the Money Planner podcast.

Taking financial control starts with a vision

Setting money goals is essential. I call it your compelling vision, and it should be ambitious: how do you want to live the rest of your life?

But like eating an elephant, it’s important to think one bite at a time. We need stepping stones along the way to our bigger target, something like this:

  • 15 years from now: I want to own my home outright and be financially free
  • 7 years: I’m overpaying my mortgage each month
  • 5 years: I have £10,000 invested, I can take a wonderful holiday each year
  • 3 years: I have paid off all unsecured debts and credit cards
  • 12 months: I have three months of expenses saved, I have a will and power of attorney
  • 9 months: I’ve started saving into an emergency fund
  • 6 months: I’ve begun repaying my debts and sold things I don’t need any more
  • 3 months: I will become financially organised and implement the bank account system

Seems achievable now doesn’t it? By thinking long-term, you can truly see the possibilities rather than trying to cram everything into a few months, which won’t work. Think big, start small.

 

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