Managing how money should be used within life is something that many Britons are trying to do successfully. This guide will give you the tools of the trade to manage your personal finances in a way that you can implement once you have finished reading the guide. Start the first day of your new financial life today with our guide.
- Loans & Credit
- Travel & Holidays
- Compound Interest
Loans & Credit
Credit lies at the heart of giving consumers and businesses a platform to achieve key goals and targets. As a key cog of financial services in the UK, the average credit lent to the average Briton including mortgages is over £28,000.
Managing your personal finances means using strategies that empower you as a consumer. Some of the strategies include:
- Understand what APR is: The engine of credit from banks and consumer finance institutions is powered by the annual percentage rate (APR). You might have seen this acronym on credit cards terms and condition agreements. APR is essentially what the bank charges you for borrowing the money at a set rate of interest which is calculated as a percentage. All types of credit products such as personal loans, credit cards and payday loans charge APR to consumers.
- Only borrow what you can afford: Calculate the potential interest payment you will make and look at the income you receive to see whether you can afford the payment. This will help you avoid falling into debt on consumer borrowing.
- Write down repayment due dates: Use a diary to log the dates that you are required to repay your loans. This will help you stay on track of what you owe to your creditors.
These are a popular form of credit that allows you to pay for goods and services with a card that has borrowed money on it. Financial institutions such as banks give out credit cards after looking at your history of borrowing and recording how you repay what your borrowed. Credit cards are best used in case of emergencies or if you have the money in full, for example if you are buying a watch with a credit card and you pay back your bill in full.
Use loans and credit as a way of changing your life in a positive way and recognise the importance of making your repayments on time.
The UK’s rich heritage in the automotive industry has spawned iconic marques such as Land Rover and Mini. This heritage is rebounding in tough times judging by new car registration statistics. The Society of Motor Manufacturers and Traders found that new car registrations increased by over 9% in July 2012 alone. This shows how new cars still hold allure for UK consumers. The Association des Constructeurs Européens d’Automobiles found that passenger car registrations in the UK soared to over 1.9m in 2011.
Consumers need to understand how to navigate the motor industry in order to manage their car finances effectively. Understand how with these top tips:
- Decide between used vs new: A used car makes sense for consumers who want to save money when it comes to purchasing a car. This is because cars depreciate in value every year even if they are bought from new. Used cars help consumers to save money and retain value if they need to be sold again.
- Choose appropriate car finance: Many people dream of owning a Jaguar or an Aston Martin. This can be difficult if you look at the retail cash price. Financing your car through the dealer or an approved lender allows you to buy your dream car within your budget as the lender will check your salary to see if you can afford the car.
- Monitor fuel economy: How your car consumes fuel will impact on your monthly expenditure. If you are in the market for a car, consider fuel economy as one of the most important features for buying your car. Marques known for efficient fuel economy include Ford and Toyota.
- Set a budget for fuel: To avoid overspending on your car, you should have a set amount of money that you can spend each month to run your car. Whether your car is diesel or petrol powered, a budget will keep your journeys in check to suit travel when you need. This also means using your car for short distances if this is what you can afford to do.
- Buy a used car with cash if it is for recreation: Unless you need a car for urgent needs such as if your workplace is far away, you should try to buy a used car with cash. This will help you to train your brain to understanding that recreation should be paid for with cash you have saved.
Hiring a car can be useful if you are planning to go on holiday or if you need a car for the short term. The trick to gaining value from money for car rental is to research which car hire companies are offering deals and discounts on specific models. Having a savings-focused approach to car hire is the best way for consumers to benefit from car hire.
To drive on UK roads legally, you have to pay road tax and car insurance. Insurance is not fixed because it depends on several factors such as your age and the type of car you are driving. Always include insurance into your monthly budget when you are purchasing a car whether it is new or used. If you don’t pay your insurance policy in full, you have the option to pay monthly which means you need to have money available for these payments.
Travel & Holidays
Holidays have always been important to Britons throughout the decades. Spending for travel and holidays is something that families and individuals think about how to finance. A report from TravelSupermarket.com found that in a pool of 5,000 respondents, the average person is spending around £642.50 on travel and accommodation for a holiday.
Making the most of your money when you are organising a holiday should be your top priority to become financially fit. We all deserve a break and holidays allow us to recharge our batteries. Use these tips to keep holiday expenditure within budget:
- Decide whether you will have short or long breaks: As a general rule, long haul holidays can be more expensive than short breaks. If you are on a tight budget, consider weekend getaways within Britain or short weekend breaks to European cities such as Paris and Berlin. These cities are known for being affordable for all types of budgets.
- Choose package holidays: The TravelSupermarket.com trend report also found package holidays and those booked separately are equally as popular with the UK population. They key benefit to package holidays is the price is all inclusive that means you don’t have to worry about paying many bills in one go.
- Manage cash and travellers cheques: Despite changes in travel trends, travellers cheques still have an allure to holiday planners because they are protected. Ensure that you have an equal mix of travellers cheques and cash to avoid having all of your eggs in one basket.
- Research travel insurance: The trick to keeping your travel insurance costs low is to look within the market as to which companies offer the most value. Decide whether you want single or multiple trip policies depending on how many holidays you will have per year.
TravelSupermarket.com reported that 46% of respondents would use savings to pay for their holidays. Endeavour to save up for a holiday without resorting to personal savings that can be used for other needs such as buying a house.
A report from Scottish Widows found that around one third of Britons are not saving any money at all. First Direct, a popular bank, found that the average household in the UK only has around £250 in savings that they can access straight away. Both of these studies show that savings is a feature of UK households that needs to be improved.
There are different layers to savings that you should understand to overhaul your money management:
- Short term savings
- Long term savings
- Emergency savings
How short term savings work
Short term savings come into play when you are planning a purchase such as a car, holiday or gadget. Consider having some short term cash stashed away to buy any products that are not considered a necessity yet they are something that you want to own.
Use a strategy such as the one below to help you make the most out of short term savings. Let’s assume you are trying to build up a short term savings cash pile to buy a new used car that you are going to buy with cash for your lifestyle. Here’s how you can use a short term savings plan to buy it:
Used car budget: £2,000
- Save weekly: Choose an amount that you can save whether it is £1 or £5 per week. By having a set day such as Friday or Monday where you have to allocate the money, this makes it easier to see how are achieving your goal. As you save each pound, you will already create some cash to cut the £2,000 goal into manageable chunks.
- Find freelance work: Every person has a skill which can be marketed as a business. Whether you are excellent at painting or you are brilliant at woodworking, try and sell your skills to business-to-business customers who will pay you. Use the profits from freelancing to create chunks of cash to hit the target of £2,000.
- Find a second job: If you would rather have a steady cheque in your account, a part-time job that you can take on in your spare time will help you get the money you need for your short term savings.
- Manage your expenses: Living within your means is critical to achieve short term savings. Whether you are aiming for a £2,000 used car or you want to put £2,000 in a savings account, you have to manage how you are living to ensure more money is put into your savings account.
As these four elements show, reaching short term savings goals is determined by your current expenses and extra income besides your fulltime job that you bring in. Short term savings should always be supplemented by long term savings which are explained in detail below.
How long term savings work
Long term savings are classed as liquid cash savings that are put away for a long term need such as retirement. Research from HSBC found that the average Briton’s retirement savings will only last for seven years. This is not enough to cover the average time duration of retirement which is 19 years, according to the report from HSBC. If you want to create long term savings, take a look at our tips with a set amount we have chosen but you can always decide to save more or less.
Savings for children: £5,000
- Be stringent with deadlines: When you are saving for a long term goal, you need to take deadlines as seriously as you do when you are paid from work. Deadlines help you to accumulate savings because you will attach a set date and specific amount of cash that you need to have by that day.
- Automate your payments: Ask your bank if they can automatically send money to your long term savings account. This automates your personal finances to the point where you won’t think about it actively, it will simply be taken out of your account and into the other account that you are using.
- Save a specific percentage of your monthly income: The commonly held thought is you should try and save 10 per cent of your income into savings. Whether you can save more or less of this threshold, you should endeavour to manage your money in a way that allows you to put at least some percentage of your income into your long term savings. It’s always better to have some savings than none. Don’t feel discouraged if you aren’t saving that much. Consistency is what counts when it comes to your long term savings which is why saving a percentage of your income is important.
With long term savings especially if you are planning for retirement, you should be aware of the financial compensation limits that the government follows. The Financial Services Compensation Scheme will cover up to £85,000 of deposits per person for each firm. This compensation limit can also be used by you to manage how much money you can save in liquid cash in a bank account for your retirement.
Having an emergency fund is something that many people strive for but feel squeezed due to the tight economy. The top advantage of an emergency fund is it gives you the breathing room to deal with any issues such as illness or funeral expenses. Top tips you need to build an emergency savings fund include:
- Choose a specific amount: A set amount such as £50 or £100 can help you pay for an emergency. The amount can be personal to you or you can go for the traditional method of a number of months’ expenses.
- Become disciplined: You should have a focused and disciplined approach to your emergency fund. This means not moving the money for discretionary purposes and only using it when you need it.
Whether you have small or large savings, it is always better to have something stashed away for a rainy day or if the economy is going through tough times.
If you have savings in an account that has interest rate, you should be aware of what compound interest is. The definition is when the cash you placed is earning interest upon interest over a period of time. This is one of the best kept secrets of financial services yet it is easily available if you start saving.
Taking advantage of compound interest through interest bearing accounts at your bank should be your next step to manage the investment side of your personal finances. Contact your bank to understand their terms and the interest rate of the account you want to deposit cash into.
Insurance touches every aspect of your life from when you drive your car to when you are ill and need to go to the hospital. The Association of British Insurers (ABI), the trade body for the insurance industry in the UK, found that over 70% of UK households have contents insurance. It’s clear that we understand the importance of having insurance, however, as with all financial services, there are cost implications in insurance. Always be aware of the following when you are considering paying for an insurance policy:
- Read the small print: Regardless of what insurance policy you have, you should read the terms and conditions thoroughly so that you are not confused on any features of your policy. This gives you the edge over insurers who know that the small print is overlooked by many consumers. Be financially savvy by reading the terms of your insurance policy to keep one step ahead of your insurers.
- Have the basic policies sorted out: According to the ABI, there are 5.7 million people in the UK who are covered by private healthcare. This highlights the growing significance of medical insurance in the UK as we are living longer. Vital insurance policies to have include motor insurance if you have a car, life insurance if you have a family and dependents and dental insurance.
- Always pay your insurance on time: Whether you are paying every year or each month, insurance payment should be made on time because you never know when you will need to make a claim on your policy.
Insurance is available through brokers, and the Internet has played a pivotal role in changing how people find insurance policies and apply for them. Shop around for the best deal when it comes to insurance policies to make your money work hard for you.
92% of UK adults have a mobile phone, according to the Mobile Operators Association. The overall adoption of technology in the UK has grown to encapsulate many areas such as TV and the Internet. Ofcom found that 50% of adults use social networking at home. If you want to buy a new technology product such as a tablet computer, you should be aware of the pricing of these products.
Look for second hand tablets or smartphones instead of buying them brand new. This helps you save plenty of cash that you can funnel into other uses. Search for bundled deals of broadband Internet and TV if you are looking for savings for your technology consumption.
A home is more than simply shelter – it is the place that your memories and relationships are nourished and built. The Council of Mortgage Lenders found that the number of first time buyers in the UK has increased by 12%. It’s clear that owning a home is a dream for many people in the UK, as the number of mortgages is also increasing. The Bank of England found that mortgage lending in the UK was at £12.4bn in December 2012.
With these strong increases in property ownership, these statistics do show that mortgage borrowers have to assess their financial situation as to whether they can maintain their payments. If you want to have a mortgage one day to buy your dream home, look at your income and your outgoings to see whether you can achieve this goal in a specific timeframe such as one year, five years or ten years.
Despite the rise of mortgages, property rental is still a popular route for many people in Britain. Renting a property has its benefits over a mortgage if your lifestyle will change or if you have plans to move to another part of the country. Renting is also less of a financial burden if you have many expenses that you need to manage.
Ultimately, managing your personal finances is critical to paying down any debts that you have and to live the life you want. Understand that money is not everything but it is a tool to empower and enrich your life to help you reach your goals. This is where the key to financial freedom lies through prudent money management that our guide has outlined.