Planning your finances for the year

Planning your finances can be a pretty dry topic, so perhaps it’s better to think about it as a way of maximising the cash you have to spend on fun stuff. Whether you’re a student, a parent or you just want to make sure your money is looking after you, it can really help to plan ahead with your finances. You might want to save up for something specific or just be prepared for a change in circumstances that could affect your living costs, but either way it’s a good idea and not as much hard work as you might think.

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The first thing to do is work out which monthly and annual expenses are unavoidable. For example, home insurance for the year, monthly rent, utility bills, council tax and so on. These are the costs you’ve got to have money set aside for no matter what – obviously there are things you can do to try and keep them as low as possible but after that you’ve got to budget for these essential outgoings.

The next thing to do is work out how much of your income you have left after essential expenditures, so you can factor in any additional services you might want to pay for but which can be classed as non-essential. These include a TV license (which you must have if you watch TV), subscriptions to services like Netflix, budgeting for gifts or meals out etc. Figure out how many of these additional costs you can afford on a regular basis and then factor these into the pot of money that you know you can’t touch over the year.

At this point it’s worth considering that if you live exactly by your monthly means (i.e. you spend all the money you earn each month and start from zero again each pay day) you won’t necessarily have any kind of buffer for unexpected expenses such as car maintenance, suddenly needing to travel to visit a family member or if you’re a renter, needing to cover the cost of a deposit if you move house. This is why it’s advisable, if you can, to put a little bit of money aside each month into a savings account for those rainy days that do occasionally happen. This way you’ll also earn a bit more interest on that money which will pay off in the long run.

The worst case scenario is that you have a change in job or employment status which means you can’t afford your lifestyle anymore. It’s hard to cut things out when this happens, but much easier if you’re already aware which of your outgoings are non-essential.

Budgeting is also important to make sure that you’re not overspending each month i.e. living above your means. If this is a problem you might want to try a new approach to managing your disposable income. For example, work out what your maximum budget is each week (after bills, rent and so on) and take a little less than that out of your bank account in cash at the start of the week. Then don’t let yourself touch your debit card again that week – everything you spend has to come out of that cash. This makes it easier to keep track of what you’re spending and when it’s gone, it’s gone! Luckily there are many budget calculators on the net which can help you to visualise your incoming and outgoing cash flow, and offer advice on where to limit spending.

Beyond yearly and monthly budgeting, it doesn’t hurt to do a bit of long term financial planning. For example, making sure you’re paying into a good pension scheme, either privately or through your workplace is really important even if you aren’t going to see the benefits for some time. Note that many workplaces now have to enrol their employees in a pension scheme, and it’s important to speak to your employer about how auto-enrolment will affect you and your finances.

It’s also a good idea to start building up a solid credit score, which you can do by getting a credit card – even if you don’t use the card regularly. You can do a comparison of credit card options on this site, and find something that will work for you.

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