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Three core principles to good financial health

Heidi Allan Head of Financial Wellbeing

Many people are feeling anxious or struggling with their financial health at the moment.

Costs are rising at a significant rate and income is not keeping pace for a large percentage of the population. Family, friends and colleagues are having to make some tough decisions to get by.

Whether you are looking at your everyday money management, or thinking about your future finances, there are three core areas I’d like to share with you:

  • Have a plan
  • Set realistic goals
  • Make your money work

Let's look at what that means for today and tomorrow.

Today

Have a plan

For everyday money management, this can also be your budget. It’s important to know what money you have coming in, and what needs to go out. Don’t forget to include everything such as your grocery shopping, fuel for your vehicle and any other expenses you may have.

It’s helpful to do this over a 12-month period so you can then add in those ad-hoc and annual expenses as well as events like Christmas, birthdays and even weddings. If you use a spreadsheet to do this, you can use a simple formula that adds up your income, adds up your expenses and works out what you’re left with (which is hopefully something!). You can also add in any extra money you may be expecting such as benefits, bonus or money from other people.

Once you have this plan, and you know everything is covered it can really help build your confidence that you have everything under control.

Set realistic goals

It’s important that you have some rainy-day money set aside to help you should something happen. This could be something breaking down at home, or your vehicle, or it could be money to pay your bills if your income changes.

If you have something that you’re saving for, such as buying your own home, getting married (or civil partnership), or even starting your family, whatever your goal, it’s a great idea to plan out what you want to achieve and when you want to achieve it. Once you’ve done that, you can work out a plan to get you there. It’s important that you’re realistic with that plan – there’s no point in setting an unrealistic savings target because you’re setting yourself up to fail before you’ve begun.

If your goal seams big and daunting, why not break it down into smaller more manageable goals instead. It’s easier to manage four goals of £5,000 than it is to manage a £20,000 goal all at once!

Make your money work

When you are doing your budget / plan, it’s a good opportunity to look at your spending and ask yourself if you really need that item. We are all guilty, especially with the advances in technology of just tapping your contactless card or device and purchasing items without really thinking about it. This ad-hoc spending can quickly mount up without us realising.

You may also find that you are paying for duplications or not getting all the benefits you can from your spending. You may have a bank account that comes with added extras such as breakdown cover or travel / gadget insurance and you may have those separately too. You may be able to get better deals on things you need by using employee discounts through your workplace too.

It’s a great opportunity to spend a little bit of time looking at where your money is going and making sure you are getting the best you can from it. Are you using all the TV channels you have access too? Are there cheaper ways of working out than the gym membership you may not be getting full value from? Have you got any duplications you can cut back on? Why not take some time and have a good review and see what you can save!

Tomorrow

Have a plan

Whether you are thinking about the medium or long-term, understanding what you want to achieve and what the future looks like is the first step. If you are planning for your retirement, what does that look like now in terms of contributions levels compared to your desired retirement outcomes.

When are your decision points, what information do you need to make those choices, and what additional support might you need?

Have you given any thought to what you might do in later life? Will you still do some form of paid work? Will your home be paid for? Will you travel? It’s also worth making sure you have a good size pot of rainy-day savings as the opportunity to build that once you are in retirement will reduce. As you get older, you will also need to consider your care needs. Thinking about these things in advance is a vital part of your future financial planning.

Set realistic goals

Understanding the actions you need to take and the timeline to achieving those needs to be realistic. For example, you may have a desire to retire with a certain level of income at a certain time in your life, so you need to make sure you know how much you need to save to make that desire a reality.

At the moment, with the cost of living squeeze taking hold for many people, there may be decisions you take today that could affect your goals for the future. You may be struggling with your money and be thinking about whether you can continue to make the same level of pension contributions for example. Now if things are really tight, this could be something that you need to think hard about. If you decide to reduce or stop those contributions, you need to make sure you understand the impact of that decision on your future. Have you got time to make that up? Do you have other sources of income that could bridge any shortfall, or are there other options you could consider first?

Make your money work

Contributing to your pension isn’t simply about what you put in each payday. There are other factors that mean your money actually works harder for you. Your employer will also put money in, and so will the Government in the forms of tax savings. If your pension is salary sacrifice, you could also be saving National Insurance too.

If you decide to stop paying in, or you reduce your contributions, you could be missing out on that additional money. Whilst you might not miss it now, it will make a difference to your retirement choices when you come to that point in your life.

In summary

Make sure you have all the information you need and you understand the impacts of your decisions. Have a well thought out plan that is realistic. And finally, challenge yourself to make sure your money is working as hard as it can for you.

One final note, if you are really struggling or in financial hardship, please don’t feel ashamed or stay quiet – reach out and speak to someone so you can get the help you need. #It’sGoodToTalk

More in the series:

More than a feeling?

Investing in DC pension schemes in turbulent times

What good governance means for members

Dashboards are coming