“Will someone please sort out my finances!”
Really? You think someday you’re going to get interested in personal finance and then sort out your finances.
Well your probably right actually. Because one-day personal finance is going to become so interesting to you, it will be all you can think about. Yep, your right that sounds more like panic. “Will someone please sort out my finances!”
Sorting our your finances needn’t be painful. Having a vision of your ideal life will help guide you on how to better manage your time and money. Saving and investing with a long term vision in mind is the key to becoming financially happy and sorting out your finances.
One day you’re going to figure out you would like more choices, but without more money, you are a little limited to what you can do. Ah, if only you had saved more at some earlier time, then you might have had more money. If only you had invested your salary, that small or large win fall and it could have grown to an amount that would now give you more choices.
Brian Tracy uses the phrase someday Isle to emphasis that it’s always some other time day or even island where we will sort out our lives. And in this case its someday Isle where I will sort out my finances.
How do I sort out my finances?
For you to manage your money better, you need to know what is going on. More importantly what’s coming in and going out.
Now, this is where some people feel ignorance is bliss. Tackling where your money is going can be both a good and bad experience. It will highlight to you what’s important to you if you spend most of your money on beer that’s clearly what’s most important to you right now. However, this may directly clash with what you want most, i.e. more choices, to travel or work part-time.
Most online bank accounts will now do this for you showing when and from where coming is coming in and going out. Some bank accounts and apps will now also categorize where your money is going.
Managing and monitoring your spending through a budget helps you send your money to where you want it to go rather than just seeing where it went.
Money-saving expert has a great budget template as an option to consider, or you could build your own with excel.
In general, spending fits into one or two overall categories. Essential, i.e. without this, you would struggle to survive/maintain your lifestyle. If you did not pay them at all, something would go wrong fairly quickly.
These costs are also often referred to as fixed costs. This means they are primarily paid at a set time every month and settled in their value. It’s not to say you couldn’t find them cheaper somewhere else or reduce the costs it’s just that its difficult to get away from them altogether. There may also be a minimum you can get to, but you can’t get lower. You can only reduce your food costs so far before you start to go hungry.
|Housing||Mortgage payments, rent, taxes|
|Transport||Car, Bus, Train, metro etc|
|Food||Groceries, tv dinners etc|
|utilities||Electricity, gas, internet|
|Insurance / health||Health/life insurance/income protection|
|Saving and investing||Cash, stocks and shares. ISA and Pensions|
|Debt management||Paying off credit cards, car loans|
Some of the above you could look for cheaper options like cheaper supermarkets or less branded food items. You could also try to haggle more competitive rates on your broadband or electricity costs with current providers or move to a rival company.
Discretionary or non-essential
Some of this can be a matter of opinion. What is non-essential to one person might be essential to another. Some people will feel their gym membership is crucial to health and social reasons others might think you can do most of this free in the park. But there we are personal finance is personal.
|Entertainment / Enjoyment||Eating or drinking out/take away, cinema, alcohol (for some essential), hobbies and interests, cable TV, gym or club membership.|
These costs can also be called variable costs as to how much you spend on them is up to you. You can have an expensive night out or a cheaper night in. It’s your choice the gym membership level you want or the clubs you join. Do you need the full cable, prime and Netflix packages or you can get rid of all of them? How much tv can you watch?
Sorting out some of your discretionary spending might have a huge affect on your finances.
1. Budget your income and outgoings
Have a go at setting a plan for all your money and where you want it to go. Sometimes also called a budget.
How much do you want to spend on food, travel, clothing?
Do you shop at the most expensive places? Can you go elsewhere for cheaper?
Do you shop every day or bulk buy? Does the frequency affect how much you spend overall?
Once you analyze these, you might see a pattern. If you are buying something, every day is that because you just have enough at home or because you walk past the store and so spend money every day because it’s there?
Are you throwing food away because you have too much of it or it’s going off? This might be telling you; you are not using your money wisely.
2. Understand your income
Do you understand what you are getting paid?
Not just the overall figure but the monthly and daily rate? Because if you understood what you got paid a day, you might realize who much certain habits or expenses are costing you. i.e. that night out with friends cost you 3-4 days of work.
Being clear on what your income is and what deductions for tax or work-related benefits, there are will help you figure out what work is earning and costing you.
You can figure out what your monthly, daily and hourly wages are here tax and daily hourly rate. It might come as a surprise what you make a day or per hour. Now factor in the time it takes you to commute, and any overtime and you will see your hourly rate drop further.
The excellent book Your Money or Your life by Viki Robin goes into great detail to work out what work is costing you with commuting, extra hours and prep time.
3. Pay yourself first
This principle is one of the greatest personal finance hacks ever. To pay your self first ensures that you can start building your wealth and staying out of debt before you start making someone else rich.
Automate your savings to save a set amount or percentage of your wages the day you get paid. This way almost guaranteeing you are the first to get paid for all the work you did and not the pub, Netflix or the gym.
Doing it this way will make sure you actually save some money and then spend what is left. Waiting to the end of the month to say will mean you may or may not save as there is often too much month left at the end of your money.
4. Set a savings goal to boost your finances
Setting a goal can help with focusing your savings. A goal can be a fixed amount or percentage or a specific thing you want to spend the money on. This will help you be clear why you are saving.
A goal can help keep you on track but also track your progress to reaching the goal.
5. Compound interest and your finances
Compound interest is one of the secret weapons of saving and growing wealth. Earning interest on your interest. The more you save and invest the more compounding your money can do, earning interest on interest and the money you keep adding.
6. Credit cards, debt and your finances
If you have debts and especially high-interest debt typically credit cards or payday loans, then it’s going to be essential to come up with a plan to deal with it. With such high-interest rates, these debts are going to cripple your journey to financial happiness.
7. Credit score
It might be useful to know your credit score. This will help you understand how others rate your creditworthiness. It could also highlight any problems you might have with previous addresses, loans or people connected to you that are affecting your credit score.
8. Track your net worth
Do you know what you are worth?
You can figure out your net worth by adding up all your savings and investments and subtracting all your debts. This will help you see how you are doing. After all your years of working what you are worth might be the wakeup call you need.
Once you have started to gather the above information, you will be well on your way to sorting our your finances.
Start now get perfect later
Whatever position you are in better to start where you are and go from there. Start gathering the data of your financial situation and then see what the gap is to where you want to go.
If your thinking about who will sort out my finances then you need to start with gathering your own data.
If you want any help with the above or how to think about long term financial planning why not drop set up a free initial call here
Are there are other things you have been doing to sort out your finances? Please add your comments below.