Looking to make your money work harder? The new tax year is upon us and if you’re a UK taxpayer, your £20,000 ISA allowance has just been renewed. So, if you didn’t make the most of your allowance last year, this could be the perfect chance to get your finances in order.
Budgeting is often the first step to taking control of your money. When you create a budget, you are in charge of where every penny goes, making it much easier to reach your financial goals and make your money work harder.
Budgeting does take restraint and it may require cutbacks in a few areas, but as soon as you start to see the benefits, the sacrifices are likely to be long forgotten. Similar to being on a diet or fitness regime, tracking your progress can help you stick to your goals and beat debt. But as we all have bad days, much like a diet, budgeting can slip and get pushed to the back of your to-do list. It’s easy to have a spending splurge and throw the budget out of the window but sticking with it can help you ensure you don’t spend all your money each month, so those difficult days in the lead up to payday will hopefully be a thing of the past.
Manage your debt
Many people have no idea how much interest they are paying each month. Across student loans, credit card bills and car repayments, interest can easily mount up. Take a moment to add it all up and think about how much you could be putting aside each month if you weren’t paying any interest. You might find out that your debt is limiting your ability to reach your financial goals and to live the life you want. Imagine if you lost your job tomorrow or something happened that meant you weren’t able to pay your bills. To protect yourself you might want to think about minimising your debt in the long-term.
One trick to getting out of debt is to start small. If you are in a financial position to do so, stop spending on credit and store cards and work to pay off more than the minimum amount each month. Once you get started, you’ll quickly see dents in your debt being made, which should give you the momentum you need to keep going until you are debt free.
Save and invest your money
Once you’ve mastered step 1 and 2, you should find yourself with some extra cash. Now is the time to start getting your money to work harder. First of all, you need to create an emergency fund. This is a fund that will tide you over if circumstances change – if you lose your job or fall ill or the boiler breaks. It’s a pot of money that shouldn’t be dipped into unless you really need it and should be topped up when you do. Putting this money into an ISA or savings account that doesn’t allow you to withdraw easily, can be a way to prevent any slip-ups.
Once you’ve got this sorted, for many people, the goal is to get the rest of your money to earn more than you do in a month – this is known as ‘financial freedom’. This may seem like an impossible target, and will, of course, require a lot of money, but it is achievable. But simply putting your money into a savings account with a low-interest rate might not have the effect that you need it to – you need to start investing.
With the rise of online investing platforms, you no longer need to be an expert or to have huge sums of money to invest. Whether you choose to invest your money into the stock market or to try something different like property or art, many platforms now allow you to invest from as little as £100. However, it’s worth remembering that putting all your eggs in one basket when it comes to investing can carry a lot of risk. So, it’s worth thinking about spreading your money across a range of assets including property, cash, stocks and bonds.
Investment carries risk, and if you’re new to investing, it’s recommended that you seek financial advice from a qualified professional before making any investment decisions.
The opinions expressed in this blog post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry.