The coronavirus pandemic has severely impacted the financial health of millions of people and around the world and caused many to re-evaluate the position they are in. What might have seemed like a solid financial position in January 2020 may now look increasingly flimsy, particularly given the ongoing certainty that will last into the new year.
With that in mind, we thought we’d provide a few simple tips to help you put some solid foundations in place and improve your financial health in 2021.
Take control of your finances
Too many people do not pay enough attention to their finances. They spend as much as they like and make do with what they have left. However, rather than taking a passive role in the management of your money, this is the year when it’s time to take control.
You need to do a thorough review of your finances to find out:
- How much you’re spending
- What you’re spending it on
- How much you’re saving
- How much you’re wasting
- What non-essential spending you can cut back on to help you meet your long-term financial goals
For some people, taking a detailed look at their financial position can be stressful, but knowledge is power. Only when you know what you’re doing with your money can you take steps to improve your financial health in the future.
Pay off your high-interest debt
Before you can even think about saving money, you need to prioritise the repayment of high-interest debts such as credit cards and overdrafts. While these remain in place, they will eat away at your disposable income and make it very difficult to achieve your long-term financial goals. There are several strategies you can take to paying off your debts. Wonga published a free to access ‘Financial Readiness Pack’ which does a great job of explaining two of the most popular – the snowball method and the 52-week saving challenge. Check out the PDF here.
The simple act of coming up with a plan is half of the battle and can alleviate much of the anxiety you feel about your debt. If you have multiple high-interest debts, a debt consolidation loan could be the way to go. It will allow you to replace your expensive debts with a more affordable loan that you can repay more easily. Read more about what debt consolidation loans are and how they work.
Automate your savings
The best way to save money is to do so little and often, ideally by taking an amount of money out of your account every month just after payday and before you’ve had the chance to miss it. By automating your savings in this way, it’ll ensure that money will be added to your savings account every month, without fail. Even if the amount is small, by the end of your year, you’ll be surprised by the size of the savings pot you’ve created.
Reduce the risk of unexpected expenses
Unexpected expenses are exactly that – ‘unexpected’ – but you can still exercise a certain amount of control over them. The first step is to explore the insurances that you have in place. If you’re not covered properly in an area that you think could be a risk, such as medical issues or vehicle repairs, make sure you put more comprehensive cover in place. Similarly, if you’re worried about the cost of faulty household appliances or systems, paying for an annual homeowner’s warranty will give you more control over the costs if something does go wrong.
What steps do you plan to take to improve your financial health in 2021? Please share your thoughts with our readers in the comments below.