Often when it is the new year, we will have resolutions and these could be financial. However, many of us will not be too sure about how to set a budget. We might want to pay off some loans, save more money or something like that, but if we just decide that, it may not be enough. It can be much better to actually come up with a plan that you can follow so that you can easily stick to it.
- Assess your current situation – it is important to start by looking at your current financial situation. You need to have a good idea as to what is going on with regards to how much money you have coming in and how much is being paid out in a normal month. Look back over past bank statements and this will allow you to take a look and see what is going on. You will be able to see how much you normally get coming in, money wise and how much you pay out. This will allow you to see whether you normally have money left over each month or whether you spend more than you earn. You probably know this anyway based on whether you have an overdraft or not.
However, it is worth going into things further. Write out in detail exactly where your money is spent. This allows you to see what is spent on essential items and what is spent on luxury items. If you need to reduce your spending, then you will need to pick form those luxury items to cut down. Be honest with yourself when doing this. You may not want to cut back in certain areas and just because you might need to cut back, it does not mean that you have to cut back everything that you like. It is more about prioritising your spending. You might even find that you are paying for things that you do not really want anymore, perhaps subscriptions you had forgotten about or things like that. It might be that you will be able to cut back in areas that you do not really mind cutting back in or that you will be able to earn more and not cut back at all.
- Set your goal – once you have an idea of what is going on with your finances you will be in a better position to think about what your goal is with regards to improving your financial position. It might be that you want to save a certain amount each month, pay off a certain debt or stick to a spending budget. Once you know where you stand financially, you will be able to set that goal and work on how you will get there.
- Set down specifics – just having a goal such as repay loan or save more will not really be that useful. If you set a specific goal then you will be able to focus far more easily. So, think about what you want to achieve and how. For example, perhaps you want to clear your overdraft in a year. You will have to think about how much there is to clear and how much you will have to repay each month in order to clear it. Then you can think about whether you will be able to easily afford to do this or whether you need to try to spend less or earn more to do it. Having looked into your financial situation you will know this and therefore be able to make plans. It is worth doing the maths and working out specifically what you will have to cut out in order to free up the money or whether you will need to earn more money in order to achieve what you want.
- Keep motivated – keeping on track can be one of the most difficult things when you set up a new year goal or a financial goal. Until you are in a new spending habit it can be hard to keep going with it and it can sometimes feel like you are depriving yourself of the things that you really enjoy. However, if you write down what you are trying to achieve from your spending and the reasons why, then this should help. For example, you might want to put that you want to save £100 a month to save up for a deposit on a home or that you want to repay £50 a month on your overdraft so that you can clear it in a year. By having this written down and somewhere where you can regularly see it, you will be able to keep reminding yourself of why you are working so hard and what your reward will be at the end of it.