A new year is a great time to get your finances in order, but sometimes that’s easier said than done. Alistair McQueen, Aviva’s Head of Savings & Retirement, offers his tips for getting started and getting your budget on track.
2020 may have been one to forget for most of us, and uncertainty continues into 2021. There is much we can’t control. But our personal finances are something we can.
A new year is a great time to review and update our personal budgets — how much money is coming in, and how much is going out. With a clear understanding of where it’s all going, you could be much better placed to navigate whatever 2021 throws your way.
Be your own finance director
The basics of running good household finances are similar to those of running a good business. Indeed, you can be your own finance director, with a profit-and-loss account and a balance sheet. Don’t worry, it’s easier than you might think. You don’t need an accountancy qualification to take control.
Your profit and loss account
For the household, ‘profit and loss’ becomes ‘income and expenditure’.
- List all your sources of income, from employment to bank account interest to share dividends and anything else.
- Then list your expenditure. Be precise when you do this. Start with your payslip and your gross monthly income, then list all the deductions including tax and National Insurance.
- Next, move onto your bank statement. List all your regular outgoings, like food, mortgage, utility bills, insurance premiums, credit card and loan repayments.
- Finally, keep a diary for the next month of your out-of-pocket expenditure, the money you spend on clothes, lunches, coffees, newspapers, going to the pub, and anything else.
The results may hold a few eye-opening surprises. Did you really spend £50 on coffee last month?
Your balance sheet
Once you’ve listed your income and expenditure, move onto your ‘balance sheet’. That’s your assets and your liabilities.
For your assets, what do you own? A house, a car, investments, jewellery? How much are they worth? Be realistic! And for your liabilities, how much debt do you have — on your mortgage, personal loans, hire purchase, credit cards and so on?
Once you’ve got it all down on paper — or a spreadsheet if you’ve gone digital — you can start to make a plan. Could you boost your ‘profit’ by spending less? Could you boost your ‘balance sheet’ by saving more or reducing your debts?
Help getting started
There’s no need to fix everything overnight. But it’s wise to make a plan. Little steps now could make a big difference in 365 days’ time.
If it all seems like hard work, help is at hand. You can find various budgeting tools online. For example, the government-backed Money Advice Service provides a free Budget Planner to help you create your detailed spending breakdown.