With summer just around the corner, this could be the perfect time to give your financial plans a thorough spring clean.
You may be wondering how to get on top of things without feeling overwhelmed. We’re here to help you get your finances in order and make sure they don’t cast a shadow over the rest of the year.
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What is a financial plan?
A financial plan is a document that contains your current money situation, your long-term goals and ways to achieve those goals.
It can be as specific or as broad as you like. More detail can be good for planning, but don’t let it become unmanageable. If it takes too much time or causes you stress, it can defeat the purpose of spring-cleaning your finances in the first place.
The most important things to include in your plan are:
- How much money you have coming in each month (wages, side hustles, etc.)
- Your outgoing costs (mortgage, rent, car payments, groceries, utility bills, etc.)
Sometimes, your income and costs may fluctuate a bit and that’s okay. But having a rough idea of your incoming and outgoing money will help you when budgeting or calculating disposable income to use for things like saving or investing.
How do you spring-clean your financial plans?
Nick Ritchie, director of wealth planning at RBC Wealth Management, has six top tips for getting your finances cleaned out and under control.
1. Know your budget
Understanding what comes in and what goes out is vital. Knowing this gives you a great foundation to build from. These days, you can often use your mobile banking app or even tech tools to help you manage your money.
2. Develop a personal plan and financial timeline
You’re going to have immediate and long-term priorities. Most of your plans will tie back into money one way or another. So it’s good to be clear on what’s important to you to make sure your plans align with your priorities.
3. Allocate savings to short-, medium-, and long-term goals
Saving is a great habit to build. But having some separate savings goals will help give you more direction. Putting aside some money for a summer holiday could be a short-term savings goal. However, you still want to consider your medium and long-term goals to make sure they don’t get neglected.
Knowing these timeframes will also help you decide whether you can take risks with some of your money. You may want to look at short- or long-term investing options.
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4. Protect what matters most
The coronavirus pandemic has been a real eye-opener for most of us. Realising that you shouldn’t take anything for granted can be a good motivator to make sure you have an up-to-date will and a suitable life insurance policy. This way, you can make sure your family are looked after.
5. Make the most of available tax allowances
We’re very fortunate in the UK to have a few different options to protect our savings from tax. Everyone’s situation is different, but making sure you’re making the most of things like your full ISA allowance or pension can be a huge benefit.
If you’re unsure of how to organise things, it might be worth reaching out to a financial adviser.
6. Understand the implications of potential tax increases
The only thing that is constant is change. There will be inevitable tax adjustments to come at some point in the future. It’s important to know where you stand and to do what you can to have things in order in case you need to allow for tax changes down the line.
Please note that tax treatment depends on the specific circumstances of the individual and may be subject to change in the future.
What other ways are there to sort your financial plans?
You can really get creative with your spring clean to keep things interesting. Perhaps try thinking outside the box and use something like the KonMari method to help make the process more enjoyable.
Understand that your situation is unique to you and make sure you focus on that. Learning how to budget, save, and invest along with a basic knowledge of how tax works in the UK will take you a long way.
Play around with your plans to figure out the best way to meet your financial needs. And don’t be afraid to adjust and tweak things as your circumstances change.