New financial year, new financial habits
April marks the start of the new financial year and therefore provides a great opportunity to 'spring clean' your financial habits. See below for our free tips on setting good habits for the financial year ahead:
1. Plan your finances for the coming year
Now is a great time to plan your finances for the year. Try to assess what you expect to earn, and what you expect to spend. Think about last year – when did you spend the most? When did you spend the least? Do you expect any big expenses this year? This type of forecasting will help you to plan ahead and avoid nasty surprises.
2. Set a budget… and stick to it
Do you know what you have coming in? What you have going out? If not, now is a good time to find out so that you can set a budget for the coming year. Don’t be misled into thinking 'budget' implies restriction (in the same way 'diet' can mean going hungry); a budget just means allocating money for certain things and it is a sure-fire way to ensure that you make the most of your money. Remember to keep it realistic: if it is impossible for you to stick to your budget every month, you need to change it.
3. Cut down on impulse purchases
We all make impulse purchases – be it sweets placed at the checkout in shops, bargains in the sales that we just can’t resist, or an unplanned treat for our kids. While the occasional impulse purchase is fine, if you make them a habit, the costs soon mount up. Next time you’re tempted, ask yourself whether it is something that you really need, and you really can afford it. If the answer is yes to both questions, by all means buy it. If the answer is no to either, then don’t!
4. Save tax free
The Personal Savings Allowance (PSA) means that if you are paid less than £43,000 a year, you can earn up to £1,000 return on your savings tax free. If your annual income exceeds £43,000, you can earn up to £500. Previously, the government would take 20% of your savings’ return in tax and the only way to save tax free was to put your money into an ISA.
ISAs remain a great option, as return on ISA savings will always be tax free.
5. Save for emergencies
No one likes an unexpected expense, but if you have the money in the bank, then at least you don’t have to worry that your finances will be completely derailed. A good rule of thumb is to save at least 3 months' salary in your ‘emergency’ fund, which will need to be in an account that you can access instantly.