There are three key rules that will help keep your finances in order as 2014 progresses.
Firstly, be realistic, most people are too hard on themselves when making a budget and are happy to deny themselves treats in advance. The reality is that we all need a boost from time to time and not budgeting for the occasional expensive item, night out or treat can make your budget inaccurate.
Secondly, be realistic on costs of outgoings and the amount of incoming payments. If you are unsure of a particular cost then be prudent and err on the side of caution.
If your income fluctuates, make a sensible estimate based on last year’s figures and what jobs you know are likely to come in next year.
Finally, and most difficult of all, try your hardest to stick to the budget. This becomes easier if you have followed the first two steps and your budget is realistic.
Creating a budget
Most people create a monthly budget because most people are paid monthly. If you are paid weekly, it may suit you to create a weekly budget, but most household bills such as utilities, mortgage and rental payments are paid monthly, which is why a monthly budget is usually the best idea.
It can be daunting to create a budget for the best time, but it can also be very revealing, providing an insight into your spending habits that can come as a surprise but also offers easy ways to boost your finances by cancelling a subscription you rarely use or cutting out any other unnecessary expenses.
The best way to do it is to save your receipts for three months and armed with the last three months bank statements, sit down and list out all of your expenses. For cash withdrawals it is vital you save receipts so that you can remember what the money was spent on.
By using information from a three month period you can work out a monthly average. Remember to include annual payments such as MOT, water bills, car tax and car or home insurance and divide them by 12 to apportion the costs over the year and get a monthly amount.
Calculate your monthly income
List all your monthly income, including salary, pension, maintenance, benefits and any other type of income you regularly receive. If you know you will receive a one-off payment, divide the total by 12 and add it to your monthly income total.
Review your budget
At the end of the first month use your bank statements and receipts that you have saved to fill in a spreadsheet or table and add all the costs and receipts into the relevant section. Once this is done you can look at categories in which you went over budget and decide on how you can reduce these costs.
- Set up direct debits for your monthly bills because you can sometimes receive discounts by doing this.
- Don’t buy anything on impulse. Wait a day and decide if it is still a good idea.
- Cut up any store cards and credit cards and pay them off as soon as possible.
- Always pay off debts that are incurring interest first, starting with the one that accrues the most.
- Take out an amount of cash each week and don’t take out anymore until the following week.
- Plan your meals for the following week and make a shopping list and stick to the list when you go shopping.
- Switch providers to see if you can get a better deal.
- Plan purchases ahead so you can compare the market and find the best deal.
How can you improve your finances in 2014?
There are some quick fixes that can be made if you do some simple checks on your main financial commitments. You could find that you can save money on your outgoings by making sure you are on the best deal or that you are managing your money in the most effective manner.
If you are starting 2014 in debt, then the New Year is the ideal time to take action to reduce your debts.
If you have credit card debt, then see if you can switch to a zero per cent balance transfer credit card. If you have multiple credit card debts and cannot transfer them all to a zero per cent balance transfer credit card, you may pay less interest overall on the debts if you consolidate them into one loan. Personal loan rates are currently very low compared to historical rates.
Check to see if you can remortgage to a better deal. Medium term fixed rate mortgage deals are also very low at the moment and with no likelihood that base rate will rise in 2014 under the Bank of England’s forward guidance policy, good deals should remain on the market for some months to come.
Be careful to ensure that there are no early repayment charges for switching from your current mortgage deal.
If you have not checked your energy deal for some time, the chances are that you can save by scouring the market to find the best deal. There are options to fix your payments for up to three winters which insures you against future price rises but means you may pay a premium. You can even earn cashback from switching if you do it through certain money saving websites.
Switch to a better deal on your current account. There are cash switching incentives from some banks and a number of providers are paying good rates of interest on balances up to a certain level. There are also cashback deals available from some current account providers that mean you can earn money on purchases that you cannot avoid making such as grocery bills and even utility bills and Council Tax payments.
If you have savings, check to see that you are taking advantage of your annual ISA tax allowance. For the 2013-14 tax year, you can save £5,760 into a cash ISA or a total of £11,520 into an investment ISA.
Paying annually for home and car insurance is normally cheaper than paying in monthly instalments because many providers charge an extra month’s payment so by paying annually you pay up to 10 per cent more.
Again, as with any financial product, shop around to find the best deal.
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