With our current financial climate making living more and more costly, being sensible with your finances is becoming integral into our lifestyles. As dull and repetitive as this subject seems, in the long term it really does help you have an easier life. By constantly showing caution with your money you are not only protecting it, but also improving your chances of receiving help from an outside source if you need it at a later date. Responsible financing has long term benefits such as having enough money constantly, rather than it upping and crashing; keeping a reserve for yourself in case things go wrong; as well as protecting your chances of receiving credit and support if ever you need it. So although the thought of taking away some of your wages and not spending it all immediately each month seems quite offensive at first, it actually helps you live more prosperously in the future.
This is the most short-term approach to being efficient with your money. Budgeting is simply controlling your spending in a period of time in order to allow yourself enough money to last. In other words, it is not spending all of your wages as soon as you get them, but regulating how much you spend daily, weekly or monthly. This ensures that you still have some cash just before you get paid again.
There are many different ways to do this, but one very useful tip to start with is to write down all your incomings and outgoing. Yes it is as simple as that (to start with). Recognising where your money is going and coming from will highlight to you any positive or problem areas. It is important at this stage to be honest, if you are spending money somewhere, note it down; even if it is on something you don’t think you should be buying – it is essential that you acknowledge it.
Once you assess the behaviour in your finances is you can address the issue of budgeting it. If you find yourself often very low on money towards the end of the month, perhaps limit the several eBay, Amazon, Topman or ASOS splurges to once a month, or every other month. Or, instead of buying that morning coffee or smoothie, you could make these at home and take them with you. Other useful tips to limit spending is to reduce the amount of take-aways or meals out you have, or to do food shopping weekly instead of daily. Alternatively, you could try giving yourself a weekly cash budget and leaving your card at home.
After you have worked out just how much you are able to comfortably spend each month whilst still accounting for living costs and bills, you will be free to assess how much you have left to play with. For some, this may be ample for what they wish to do in their spare time and more. For others it may only just be enough, and with any hiccups or unexpected events they may be left short-changed.
Putting some money away, no matter how small, can be hugely beneficial to you in future months to come. A saving of just ï¿½50 a month can give you ï¿½300 in just 6 months, ï¿½600 in a year and ï¿½3000 in 5 years, which is a huge amount for some money that could easily go unnoticed. Once you get into the habit of saving you will not notice that you are doing it. You can even set up a standing order for the day that you get paid to take money out of your current account and put it in your savings. Once in this pattern you will see your savings account flourish, and if your circumstances change, or you need an emergency trip to the vets, dentist or mechanic, you will be covered without needing to borrow credit.
There are various different savings accounts to suit everybody’s needs: premium bonds do not accumulate interest on the amount you invest but instead enter you into a monthly draw with prizes between ï¿½25 and ï¿½1 million. ISA accounts, on the other hand, are Individual’s Savings Accounts that are not subject to income or capital gains tax, and have no restriction on when or how much money can be withdrawn.
This is the most long-term financial precaution that most people take. A pension is, by definition, a payment made by the state to those over the age of retirement, which in the UK is currently 65 for men, and 60 for women, although this is subject to change in the next decade. This may seem like a long way off for most people, but opting in now for a workplace pension scheme and contributing to your own pension early is being coined an easy pay rise. There is legislation being pushed forward whereby your employer has to contribute to your pension as you do, and you will get at least 20% of the tax back from this money. The only downside is that you will not see this money until you are 65+, and until then it will be deducted from your pay packet. So although this may seem pointless immediately, as yes, you are technically losing money; when you come to retire you will notice the exceptional benefits.
In recent news, the government have stepped up to stop UK pension funds concealing hidden costs in the hope that this will save workers thousands of pounds. Up until now, some workplace schemes have concealed some fees which have robbed employees of the financial stability they thought they were paying for. If this bid for transparency commences then the benefits of paying into your pension fund early hugely outweigh the slight dent seen in your pay packet each month. Until then it is important to thoroughly check and understand the terms and conditions you are agreeing to with your pension fund. Luckily, there is support available for this, the pensions ombudsman service can investigate the suitability of an individual’s pension, or transfer you to someone that can.
How you handle your personal finances can only be down to your personal situation and preferences. There are no rules or laws that can force you to save for a rainy day, but there is legislation that fully endorses, and even encourages you to do so. With such protection and support from the government, employers, banks and other organisations it seems foolish to waste the opportunity to maximise your financial potential with very little sacrifice.
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