Managing personal finances can be challenging, especially when confidence is lacking, as evidenced by the 20.3 million adults in the UK who feel insecure about their financial management skills. Here are five top tips for how to manage personal finance from Arlyne Chinyanganya, Chief Financial Wellness Coach and Founder of Roots to Froots.
Set a goal
Setting clear and meaningful financial goals is the cornerstone of successful budgeting. Start by setting your short-, medium- and long-term goals. Short-term goals might include building up an emergency fund or saving for a holiday, while medium-term goals might include buying a house or financing study expenses. Long-term goals usually revolve around retirement planning and wealth accumulation.
Once you have set your goals, quantify them by assigning specific dollar amounts and target dates. This not only provides clarity but is also a source of motivation. Consider allocating 20% of your monthly income to retirement and keeping an emergency fund of 3-6 months for unexpected situations.
Create savings pots
To manage your finances effectively, it is essential to organise your savings into dedicated accounts or “pots”. Create separate accounts for each of your financial goals, be it an emergency fund, retirement savings or a down payment on a house.
Splitting up your savings makes it easier to track progress towards each goal and prevents you from being tempted to withdraw money earmarked for specific goals.
Research different types of savings accounts, such as high-interest savings accounts or investment accounts, to maximise the growth potential of your money. In addition, seek advice from financial advisers to ensure your savings strategy is in line with your risk tolerance and long-term goals.
Set standing orders
Automation is a powerful tool for maintaining financial discipline and consistency. Take advantage of your bank’s standing payment orders to pay your savings and bills automatically. Set up recurring transfers from your checking account to your savings or investment accounts to ensure that a portion of your income is consistently allocated to your financial goals.
By automating your savings, you remove the temptation to spend impulsively and make it a habit to save regularly. It also eliminates the need to make manual transfers every month, saving you time and effort. However, it is essential to regularly check your automated transactions to make sure they are in line with your changing financial priorities.
Stick to the plan
Stay committed to your savings journey. Saving money requires discipline and sacrifice, especially when you are facing competing demands for your income. Regularly remind yourself of the reasons behind your savings goals and the benefits they will bring you in the future.
Celebrate milestones along the way to keep yourself motivated and committed to your financial plan. Whether it’s reaching a specific savings goal or successfully sticking to your budget for a continuous number of months, acknowledging your progress can boost morale and reinforce positive financial habits.
Review and adjust regularly
A budget is not a static document, but rather a dynamic tool that should evolve with your changing circumstances and priorities. Review your budget regularly to ensure it remains relevant and effective. Set aside time at least once a quarter or a year to review your financial situation, spending and progress towards your goals.
During these reviews, evaluate your spending habits, income streams and savings contributions. Identify areas where you can cut back or reallocate money to better align it with your priorities. Also consider changes in your life that may affect your financial plan, such as a job change, marriage or the birth of a child.
Be prepared to adjust your budget as necessary, whether it is increasing your savings rate, revising your investment strategy or reprioritising your goals. Flexibility is key to ensuring your budget remains effective in achieving your financial ambitions.
By Arlyne Chinyanganya, Chief Financial Wellness Coach and Founder of Roots to Froots
