There’s more to life than money, but getting your finances in order is a good place to start. With enough money and your cash handled correctly you have peace of mind, you can afford the things you want and you set yourself up for a comfortable future. The best things in life might be free, but thinking about money is sensible, it protects you against lots of kinds of hassle and makes life easier which is something we all want. Here’s how you can make the most of your money in seven simple steps.
Get out of debt
One of the most important things you can do in terms of your finances is to get out of debt. Loans, credit cards, store cards and other balances you owe will all be costing you money every month that you carry a balance by racking up interest. Focus on getting them paid off, and then close the accounts. Get into the habit of saving for the things you want, rather than relying on credit to pay for them. Of course, there is such a thing as ‘good debt’ and things like mortgages, student loans and even car finances purchases in some cases are worth getting into debt for as they can generate you more money in the long term. For example, buying a car even if it’s on finance means you have a reliable vehicle and might be able to take a better job further away from home. Student or business loans can lead to the ability to earn more money later down the line. But for other things or where at all possible, don’t use credit and work on paying back what you owe- starting with creditors that are charging you the most interest. If you are in a lot of debt and aren’t managing, speak to a debt collection company. They will be able to explain your options, it could be an informal agreement with your creditors to reduce interest and monthly payments, or something more extreme like an IVA or bankruptcy. It seems scary but the quicker it gets put in motion, the quicker it will be sorted and you can begin rebuilding your credit score.
It doesn’t matter if you earn a little money or a lot, a huge amount of the way you can live and your financial future comes down to the way you spend it. Budgeting your money helps you to save and ensures that everything is always paid on time. You don’t have to worry about falling behind with money, and you always know where you stand. A good way to budget your money is to open a separate bank account that’s just for bills. Set everything to come out by direct debit, and each time you get paid, transfer enough to cover everything. It makes things very easy for you as you’re not having to pay separate companies, and you never accidentally spend back onto the account as it’s separate from your other money. Budgeting apps and softwares can also be useful too.
Have different savings accounts
Once you’re out of debt, you can then begin saving. It doesn’t make sense to save when you’re in debt since the interest will be costing you money, so this needs to be once everything is all paid off. But better than one savings account is having a few for different things. Once should be your ‘life savings’- an account that’s only ever touched in a genuine emergency such as if you lost your home or needed money for urgent medical treatment. Another should be for longer term savings goals such as saving for a mortgage deposit or your dream holiday. Finally, one account should be more of a ‘buffer’- this could be used if your washing machine broke down, your car needed fixing or if an unexpected bill dropped through the door. That way you have money when you need it but aren’t tempted to go dipping into your longer term savings. Transfer a small amount of money each week into these accounts until you reach your goals, a little here and there really adds up. You won’t really notice it in the here and now but if you ever need it you’ll be so glad you did.
Cash in the bank is great and always worth having, but so is insurance. That way, if the worst happens you know you’re covered and won’t end up out of pocket. Contents and buildings insurance protect your home, consider pet insurance, health insurance and even smaller things like boiler and appliance insurance can be extremely useful. It protects your pockets and can give you great peace of mind.
Purchase your home
Speaking of purchasing your home, this is definitely something you should aim to do if you can. The price of rent and a mortgage payment isn’t all that different, however when you pay your mortgage it’s money going towards something you’ll eventually own. This helps to build your wealth, means you have money tied up in something and will benefit you when you retire later down the line as it will all be paid off and you won’t need to spend your pension on a place to live. In general, property accumulates in value each year so it will continue to generate income for you and all in all is one of the most worthwhile things you can do in your adult life. Start a savings account with a high interest rate, see if there are any help to buy schemes in your area and work hard to gain the deposit you need. Most mortgage providers will want ten percent of a property’s value and will loan you on the 90% remaining over around twenty five years. Saving for a deposit can be tough and take a while, but once it’s paid you won’t usually be paying any more each month than if you were renting. In some cases it will actually be a lot less.
Think about retirement
With retirement in mind, this is something to plan and think about as early in life as possible if you want to live comfortably in terms of your finances. Buying your home is the first step, the second is saving for your pension. In many places, your workplace will legally have to offer you a workplace pension, and will contribute a set amount towards it along with your own contributions. If you’re self employed or don’t have a permanent job, it’s something you’ll have to set up yourself. When you’ve worked your whole life, raised a family and contributed to society, retirement should be your time to kick back, relax and have fun. But you can’t really do that without money, so starting early and getting that pension pot contributed to is crucial. You could also consider making some investments to add to your monthly or yearly income both now and in retirement, which leads to the next point.
Once you’re out of debt, have a good amount of savings in the bank and are doing well financially, your next step is investing. This enables your money to work harder for you, having savings in the bank is important but you don’t want too much money sitting there and doing nothing. You could invest in property and rent it out, or go with property abroad with a company that specialises in selling overseas homes and rent to holidaymakers. Not only would this allow you to use the property yourself when you wanted throughout the year, but you have a regular income without any extra work or hassle. Other kinds of investments can involve the stock market, commodities and cryptocurrency, but seek professional advice before diving in as it’s something you need to understand as there are risks involved. Passive income generates you extra money in the here and now, and once you retire and no longer working it continues landing in the bank each month or year.
What kinds of things have you done to protect yourself financially and/ or made the most of your money? Have you done any of the above yet?