If life feels like you’re on a roller coaster right now — but without the fun — you’re not alone. The unsettled economic backdrop is having a stark impact on everyone’s finances. According to Finder, a third of us are using our savings to deal with the cost-of-living crisis, two thirds of households have seen an increase in rent or mortgage payments, and gas and electricity bills have gone up pretty much across the board.

Now could be a good time to sit down to reassess where you are financially and set a realistic course for the year ahead. In other words, create a financial plan so you can focus on the things you can control, build in some certainty, and give yourself one less thing to worry about.

Karen Barrett, founder and CEO of Unbiased says: “A financial plan gives you something to work towards that can be reviewed and adjusted when life throws you curveballs, which it inevitably does from time to time. Knowing what your future goal is, and understanding what steps you must take to get there, keeps you in control of your finances.”

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The Chancellor’s 2023 autumn statement expect to focus on curbing inflation and easing the cost of living crisis. It’s clear, we’re not out of the woods yet. Half of adults aged 35-54 describe their financial situation as “struggling”, according to LV’s Wealth and Wellbeing Research 2023. It’s time to put some time aside for your long-term well-being and get a financial plan in place.

8 steps to create a financial plan

As well as helping you achieve your financial goals and build some resilience, having a financial plan in place – and in action! – can provide real peace of mind that you’ll be able to cope with whatever challenges come your way. In a time when we all crave certainty, this feels like a particularly appealing prospect.

1. Get to know your money flow

You may be a dab hand now at rationalising bills, cancelling unused direct debits and subscriptions, or finding better deals to switch to. You may even have managed to keep squirrelled away spare cash through the cost-of-living crisis. Take time to familiarise yourself properly with exactly what’s coming and what’s going out now.

Know what you spend. If you need a kick-start, do this: make a list of all your regular monthly outgoings (use your bank statements) in three columns: needs, wants, savings. ‘Needs’ should have your utilities, groceries, essential travel costs, insurances. ‘Wants’ will be for non-essential spending like shopping, leisure activities, entertainment. ‘Savings’ speaks for itself (but don’t forget to include pension contributions made outside your monthly pay-check).

Total up your income. This isn’t just salary, it could be money from interest on savings, cash gifts, child benefit, carer’s allowance, any property rental income, any regular money made from selling things online, etc. Subtract your monthly expenses from your income to see whether you have a shortfall or money left over. If you are spending more than you have coming in, then see where you can make cuts. See below…

2. Set yourself a monthly budget

Once you’ve got a better idea of what’s coming in and going out of your bank account every month, put together a budget that will help balance the books. This will help month to month but you should also take into account any spending surges or dips in income that you can foresee over the next 12 months. Think how you can plan to cover these – for example by putting aside an amount of money each month as a contingency pot.

Finding it tricky to create a monthly or annual budget? The budget calculator at MoneyHelper might help or use a money management app to group spending by area and help you identify overspends.

How much should I save?

“I’m a fan of the 50/30/20 flexible approach: 50% of your take-home pay goes to your needs (bills, food, minimum debt payments); 30% goes to Future You (debt payments above the minimums, saving for emergencies and investing),” says Emma Stevens co-founder of Corinthian Wealth Management. “Save first, spend later – if you do this, it’s a sure way towards financial freedom.”

If you find it hard to keep track of your incomings and outgoings, ask your bank what help it can offer – online banking or using your banking app makes it much easier to see at a glance what you have spent month to month and in what categories. If this isn’t your bank’s strong point, there are plenty of easy to use money management apps, including Plum and Moneydashboard to hold your hand and help you identify areas of regular overspend.

3. Make a debt strategy

You may have credit or store cards that have been maxed out, you may have a personal loan or used Buy Now Pay Later schemes when you shop. If you are paying interest on any debt, this is money down the drain. It’s time to make a strategy for how you can be debt-free this year (we’re not talking about mortgages, that’s another issue we’ll come to).

*Use savings to pay off debts. This is more important, as things stand, than topping up your emergency fund. The benefit of getting rid of the growing interest from a credit card (now typically charging over 19%) will far outweigh the interest earned on the same money in a savings account (where rates are typically around 5.1%). However, if you are paying off debt at a fixed rate and would be charged a fee to exit this arrangement, you’ll need to be sure the maths still makes sense.

*Pay off the most expensive debt first. List all your debts in order from the most expensive to the least expensive and prioritise using any savings or spare cash to reduce the debt each month.

*Minimise interest on any debt you can’t pay off. For any debt you can’t pay off with savings, move it to a 0% deal such as a balance transfer card or a 0% overdraft bank account. Check out the best buy tables at moneyfacts.co.uk.

*Debt keeping you awake at nightl? If you can’t meet the minimum payments on your debt, explain your difficulties to your creditors and get a payment plan in place. “You might also benefit from some budgeting guidance to see if there are any ways you could make your money stretch a bit further. It’s not usually a good idea to borrow more money if you can’t meet your minimum payments,” says Sue Anderson, from debt charity Stepchange.

step by step guide to pull together a strategy for keeping on budget and achieving your financial goals

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4. Top up the emergency account

Your emergency fund (or rainy-day fund) may be feeling a little depleted at this point with the cost of living crisis still in full swing. After paying off what debt you can, it’s essential to prioritise saving into this account. Make sure even these savings are earning the best interest possible (you are looking for around 5% on an easy-access account, if yours doesn’t measure up, switch while interest rates are still good!).

“We all know the importance of having an emergency fund that would help in the event of you or your partner losing a job or an unexpected payment like a boiler breaking down. However, too many people keep their emergency fund in their current account. Especially now interest rates have increased you should try and maximise the interest you are getting on this pot of money which should usually be around three to six months of your expenses,” says Rosie Hooper, chartered financial adviser at Quilter.

5. MOT your mortgage

If you are coming to the end of a fixed term on your mortgage, you may justifiably be getting a little nervous. The average mortgage interest rates on a two year fix is currently at 5.4%, according to Moneyfacts, but higher with some deals. But tracker mortgages, that are pegged to the Bank of England’s base rate and follow its movements, are also attracting some attention. The average two-year tracker is currently 5.79%.

If you need to remortgage, find a broker to help you understand the options. Comparison sites, such as Comparethemarket, are a great place to do your background research, including one that includes direct-only deals, such as Totallymoney or Moneysavingexpert. It’s worth making sure your credit score is as good as possible as this will affect how good a proposition you are for any lender.

If you’re having trouble with payments, talk to your lender as soon as possible.

6. Check your retirement pot

One of the most empowering things you can do at any time of year, is check how much you have in retirement savings. How can you know if you will have enough to live on once you’ve stopped working if you don’t set yourself a goal and work towards it? What you don’t want is to get within striking distance and realise then that you don’t have enough. As a ballpark figure, aim to retire on about half your working income.

Pensions are an important part of your financial picture and it’s important to know how much you’re investing into your pot, where it’s invested and whether it’s enough to ensure a comfortable retirement. Make sure you get hold of the log-in details of your online pension portal (bookmark it) and find out.

You can find out how to check all pension and the progress of your retirement savings at MoneyHelper.

7. Check your long-term savings and investments are working hard

You’d be surprised how small, but regular payments into a fund or stocks & shares ISA can go almost unnoticed each month but make a big difference over the long run. Set-up a regular savings plan with a top-performing ISA provider to make sure you are making the most of ‘drip-feeding’ money into the markets. You can compare ISA interest rates at comparison sites such as MoneySuperMarket, Comparethemarket and MoneyfactsCompare.

“ISAs and pensions are tax-efficient ways to save for the future and taking advantage of your annual allowances can help you maximise your savings and reduce your tax liability,” says Quilter’s Rosie Hooper. “By contributing to your ISAs and pensions early in the tax year, you’ll have more time for your money to grow tax-free, which can have a significant impact on your savings over the long term.”

How much can I save and where?

The first step in answering this is to identify your needs and goals. If you need help getting started with this, Moneyhelper has a useful tool ‘complete a money fact find’.

There are lots of factors that will go into deciding where to invest your money – from time frame, tax position, appetite for risk, the kind of returns you need on your money, how much you want to manage your plan yourself. It’s really important to do your research and if you put your money in someone else’s hands, ensure they are regulated. To find an independent financial advisor, visit Unbiased or Vouchedfor.

8. Planning for the self-employed/freelance

Prudent financial and business planning is a vital tool for anyone that is working for themself or running a small business, but the issue is often finding the time, according to Emma Jones, founder and CEO of Enterprise Nation.

“For anyone who is self-employed, the key focus is to maximise sales and manage costs. Achieve this through being in the places and spaces your clients are at both on and offline and trying to secure payment in a timely fashion. This could include agreeing payment plans up front, branching out with a new product with lower price points that attract a bigger market, or indeed going upstream and selling to larger clients through homing in on your niche,” she says.

* Record all activity in a basic excel sheet to keep track of opportunities and produce a cashflow forecast for the year ahead so you can be prepared for any future shocks. There’s a useful webinar on this here.

* Try to keep 3 months’ worth of operating costs (the amount it costs to run the business each month) in the bank in case you ever need to access it.

* Keep a separate account for money reserved to pay your tax bill as you don’t want a shock at year end with a tax bill that can’t be paid.

* Get help with cashflow and money management from qualified and trusted advisers who make the job of staying financially secure so much easier. You can find some here.

* Enterprise Nation with Strive UK have developed useful tool to help you create a personalised action plan.

If you need the help of an independent financial planner, visit Unbiased; The Personal Finance Society, or Vouchedfor.


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