How to Get Your Finances in Order for 2021
We know that 2020 was a difficult year for so many people in so many different ways, and while you can’t always predict what the future holds, you can start planning for the future somewhat with regards to personal financial planning, managing your money and meeting your savings goals.
In this guide, we walk you through the meaning of personal finance, why it's important for you and we provide 6 useful tips that can help you get on the right path.
What is personal finance?
Personal finance is the broad term that refers to managing your finances, checking your financial progress, opting for self-reliance when it comes to your finances and more.
There are usually thought to be five areas of personal finance:
Depending on who you ask, these factors will differentiate somewhat, but these are definitely some of the key areas you should be focusing on.
Why is personal finance important?
Personal finance is important as it teaches you how to manage your money. Good money management skills are invaluable as they enable you to look after your hard-earned savings, investments and cut spending where necessary in order to avoid debt.
You might like: How to Manage Your Debt
How to manage your personal finances
If you’re looking for some help on how to manage your money better, then we’ve got just the list for you! Here are 6 ways in which you can start ironing out your finances right now.
1. Save money
One of the first steps of having a solid financial plan in place involves learning how to save money effectively.
This is so you can have money stored away for a rainy day, for a lovely holiday in the summer, or even just as an emergency budget fund for instances such as the Coronavirus pandemic, which has, unfortunately, left many people without a sustainable income or sufficient savings.
One way that you can save money is by using money-saving apps such as Monzo and Starling. These are known to be some of the best challenger banks in the UK and they offer free features that allow you to manage your money, save money and control your spending.
Learn more: How to Build an Emergency Savings Fund
2. Think about where your money currently goes
Another important and helpful step when it comes to getting your finances in order, particularly when it comes to saving money, is to think about what you currently spend your money on.
While you might have saved more money than usual in 2020 due to the Coronavirus pandemic and the inability to go out and spend as often, there might still be areas where you can save even more money in 2021.
Check your bank statements and collate your outgoings to see exactly what you spend your money on each month. Chances are, there will be a few things that you can cut back on such as monthly subscriptions or online retailer purchases that will help you meet your savings goal much quicker.
3. Clear debt
Clearing your debt is a money-related goal that many people often strive for, but it’s certainly much easier said than done to be able to clear off any debt you have.
Long-term debts such as mortgages are something that people usually pay off over the course of many years, so this isn’t really something you should worry about too much going into 2021 and beyond, unless you’re in the financial position to be able to pay your mortgage off.
However, other types of debts such as credit cards or store cards are something that you should consider paying off, if and when you can. The longer you have these kinds of debts, the higher interest you’ll have to pay on your repayments and it could have a detrimental effect on your credit file and credit rating.
Try and pay these off as soon as you can, so that you can enjoy a relatively debt-free 2021.
You might like: What is a Debt Management Plan? (DMP)
4. Pension planning
Planning for your future by having a smart pension plan in place is another key aspect of getting your finances in order.
While you might think that you’re too young to be thinking about putting a pension plan in place, it’s argued that you’re never too young to start thinking about your financial future.
If you’re not quite in the financial position to be able to put a lot away into your pension fund just yet, then just start with little contributions here and there, and then increase your payments over time when it makes more financial sense for you to do so.
5. Create your own ‘cooling-off period’
If you’re an avid spender who enjoys taking advantage of Buy Now, Pay Later schemes, it may feel like you’re not really spending money at all, but this can be a dangerous, slippery slope to fall down.
Before impulse-purchasing something online and putting it straight on your credit card, try and impose a ‘cooling off period’ on yourself where you give yourself time to think about the purchase you’re about to make before you actually commit to it.
This can be a great way to manage your finances as you’re giving yourself time to really think about the purchase and whether or not it’s actually a good idea. Perhaps give yourself at least 48 hours to think about the proposed purchase and in that time, you may find yourself actually going off the idea of buying the item and instead you can put the money you ‘saved’ into your savings account.
6. Regularly check your credit score
You should endeavour to check your credit report throughout the year so that you can get a brief glimpse into what your credit file says about your financial position and history.
Companies such as Experian and Equifax keep a record of your credit file, but it’s a good idea for you to be personally aware of your credit score and other financial positions.
You can use a multi-agency credit-checking website like Checkmyfile, which uses all of the four main CRAs in the UK to provide information regarding your credit history. This lets you identify any mistakes on your report which may be holding you back - Checkmyfile has the resources to help you rectify them if you notice any. They also have tips on helping you improve your credit score if it needs building back up.
Signing up to Checkmyfile is free for the first 30 days, but to continue using its handy services after that, you will need to pay a subscription fee of £14.99 per month. If you don't want to take advantage of this, simply cancel your subscription before the free trial period ends. Tap the button below to get started now!
Getting your finances in order for 2021 might seem like a daunting task at first, but once you’ve broken it down into manageable steps, you’ll soon find yourself feeling much more capable than you first thought.