Spring clean your finances
2021 was a tough financial year for many of us and we may find that our financial outlook is still uncertain as we continue to live and work in many different ways. But rather than focus on the negative, if you are able to, try looking for the positives and spring clean your finances ready for the year ahead.
Here are 5 easy steps to get you started:
The first step to spring cleaning your finances is to know what you’re dealing with and that means collecting everything in one place. Only that way can you really understand your financial situation: your income, your outgoings and your assets.
What money do you have coming in? Count everything: your earnings, additional income (rent from a tenant for example), profit from savings, benefits, money that you are owed etc.
What money do you have going out? List every one of your expenses and use your bank statements to make sure you are capturing everything. Your list will include both fixed and variable expenses:
- Fixed expenses: those items where the figure can remain the same from month to month, such as home finance, utilities, insurances, mobile phone, internet, TV license, media subscriptions to TV, streaming services, newspapers etc.
- Variable expenses: essential items that you must buy but the amount varies from month to month, such as food, travel, clothing, grooming (haircuts for example) etc. Make your best guess on how much these cost – but be realistic.
What do you own? Your list should include:
- The value of your home if you sold it today (there are websites that can provide you with sold house prices in your area if you need help) minus any outstanding home finance.
- Cash: savings and investments, including ISAs and your pension. If you have had more than one employer, you may have more than one pension. Find out as you will need to include them all.
- Any other high value items that you own (such as jewelry, cars etc.)
Just like we can easily accumulate clutter in our homes if we’re not vigilant, it’s the same with our finances. Financial clutter can include payments for products or services we don’t want or need (see Step 3), having multiple pension pots, or splitting your money across multiple accounts which can make it harder to keep track. An easy way to know if you have a cluttered financial life is consider how easy it was to complete Step 1. The harder it was, the more cluttered your finances.
Finances can also cause physical clutter as a lot of financial documents are still based on paper:
- Find out what you need to keep, and what you don’t; for example, payslips only need to be kept until you receive your P60 and utility bills for one year – in case of problems and so you can compare when it comes to deciding on a new deal (see Step 3). An online search should give you the information you’re after (although make sure you’re searching UK-specific information as the rules differ by country). What you don’t need, shred.
- Get organised:
- Set up an efficient filing system and clearly label the different areas, for example: bank, utilities, pensions, car. This applies if you’re using a paper-based system or an online one.
- Opt to have ‘paperless’ statements – that is statements that are emailed to you, or viewable through an app. Al Rayan Bank offer paperless statements by default and customers have to choose to receive paper statements. Find out if any other providers offer the same service to dramatically reduce clutter.
Take your lists from Step 1, and ask yourself two questions about every single item on your list (don’t miss anything out):
- Do I need it?
- Can I get it cheaper?
There are multiple providers of utilities, broadband, insurances, mobile phones and many other annual contracts and it’s easy to shop around to see if you can get a better deal. It may seem like a hassle, but you will already have made life a little easier on yourself by Decluttering (Step 2) and the savings could be significant.
There is help online to make this process easier. This includes bill comparison and auto-switching services, and information such as this handy guide to switching energy supplier by Ofgem, the government’s energy regulator.
If you have freed up spare cash by following Steps 1-3, why not save it? You won’t miss it as you have been used to living without it and you’d be surprised how quickly your savings will mount up.
Before the fiscal year ends on 5 April 2021, you could take advantage of your Individual Savings Account (ISA) allowance, which is set at £20,000. However much or little you can put away will earn you tax free profit and the 2021/2022 allowance will start again on 6 April. You can find out more about Al Rayan Bank’s range of Sharia compliant ISAs here.
If you can put your money away for a period without needing to access it, then a Fixed Term Deposit account could give you better rates of profit. You can find out more about Al Rayan Bank’s Fixed Term Deposit accounts here.
It makes sense to set time aside to review your finances throughout the year. How often will depend on you, but a good rule of thumb is every three months. The great news is that it will never be as troublesome as it was the first time round as you’ve done all the hard work, and the even better news is that you will always be making the best use of your money.