Making thoughtful, balanced and well-informed decisions about your finances is essential. After all, you are the one who is going to have to live with the consequences. Financial education is so important for everyone.
In our parent’s generation, financial management was far simpler. Salaries were either paid in cash or by cheque – which they would pay into their bank account. They had a cheque book to pay their bills, and they held their savings in a deposit account, premium bonds or tucked away safely in a building society.
In those days, there were no credit or debit cards; bank statements arrived in the post, and if you wanted a loan you went to see your bank manager. Luxury goods such as cars and washing machines were bought by paying in instalments using Hire Purchase agreements
Why do some people feel confused about managing their money?
Though education on money matters has improved in schools recently, it was unheard of years ago.
When young people leave school or university, they may be armed with a stack of qualifications and letters after their names, but they often have no clue how to handle their finances.
The range of financial services now available is vast but so few of us really understand them, so we need to educate ourselves.
There is plenty of information available on the internet so self-education is quite simple. Thanks to the internet you can easily find the information you need.
Personal finance blogs are a good source of information too. You can learn a lot from other people’s experiences – both good and bad.
And you don’t need to read the Financial Times to keep abreast of money matters. Most daily newspapers have money advice columns, so it’s quite easy to keep updated with what’s happening in the financial world. Start reading and keep learning!
Knowing how much your household bills are and budgeting for them
Before you can prepare a budget, you need to know just how much money is coming in and how much is going out – simple!
This can be done ‘on the back of an envelope’ – ‘money in’ in one column and ‘money out’ in the other, but there are plenty of apps available to help you with you budgeting.
The ‘money in’ is generally constant. Include wages, your partner’s wages if applicable, benefits and interest on any savings that you may have.
The ‘money out’ is less simple to calculate. Your rent/mortgage, council tax, and internet/phone bills (depending on your contracts) generally remain the same.
But do include an average of your water, gas and electricity charges – and don’t forget to include all direct debits and standing orders you may have to cover insurance, car finance, and any other outgoings you have in place.
On top of that, add on the average monthly figure of how much you spend on other living expenses such as food, entertainment, clothes, etc.
If you stick to your budget you are less likely to run out of money by the end of the month.
Keep your credit card free of fees
In an ideal world, there would be no need for credit cards but if you like the flexibility and convenience they offer, do your research carefully and find the one that offers the best deal.
There are hundreds of credit cards available, so use an online comparison site such as comparethemarket.com or moneysupermarket.com to find the best deals.
If you are smart, you can simply swap credit cards at the end of the interest-free period from one card to another one offering a similar deal. But be careful and look at the small print. Though a credit card can look appealing, there are terms and conditions that apply, so read them thoroughly.
Also, the charges involved in swapping may prove to be costlier than staying where you are – so do your calculations carefully!
But regardless of whether or not you have an interest-free period, it is always best to try to clear your debt every month. It’s a good habit to get into!
Understanding interest rates
If you’re starting to think about saving or investing, ISAs could be a good place to begin. An ISA (Individual Savings Account) is a tax-free method of saving and investing.
On other savings accounts, you may have to pay income tax on the interest you earn. Depending on your individual tax situation, the interest on a cash ISA is paid free from tax, so the interest you earn, you keep. And you can save up to £20,000 per annum – so you’d be hard-pressed to find a better place to park your cash.
If an ISA doesn’t appeal take a good look around and find a savings account that not only pays a healthy rate of interest but gives you the flexibility you require. If you don’t like the idea of tying your money up for a long time, choose an easy-access account which will allow you to withdraw your cash when you need it.
But whatever you do – even if you decide to put your money in a cake tin under the bed – having some savings is better than having no savings at all!
Have an emergency fund
Tough economic times have affected people of all backgrounds and it’s all too easy to spend everything you earn to the last penny, so when an emergency strikes you can find yourself with real problems.
Having an emergency fund – or ‘rainy day money’ as it used to be called – is vital.
None of us know when an emergency can strike. Whether it be a major car repair, a boiler replacement or a tragic bereavement, we need the cash in reserve to cover the costs.
Generally speaking, three months living expenses is sufficient, but even if you only have one or two months saved, this will help you navigate a difficult financial time.
But if you are employed and find yourself in need of a short term loan to get you through an emergency be careful of the lender you choose and most importantly, make sure that the company you approach is registered with the Financial Conduct Authority (FCA).
Saving up for holidays
To many, holidays are an essential part of life – it makes working hard all year seem worthwhile. Whether you are going on a weekend break in the UK or a couple of weeks in the Bahamas they all cost money. Mind you, with the popularity of Airbnb and cheap, short-notice deals available on the net, holidays aren’t as expensive as the used to be.
If you are a ‘determined holiday maker’ probably the best way for you to save is by putting away a regular amount of money every month in a ‘holiday fund’. The best way to do this is to open a separate savings account and make regular payments directly into it. That way you know you’ll always have the money for a great break and no worries!