10 Steps to Financial Freedom

Life out there is tough. Financial factors in the macro-environment have been challenging for some years, and many of us are feeling pessimistic about our money health.  Debts are mounting, savings accounts are seeing low returns, and the economy is fairly flat. In these circumstances, it’s easy to want to bury your head in the sand and forget all about fiscal matters. But that is the very worst thing you could do. The fact is, you are always in a position to make a difference to the state of your financial health. There are so many small, easy steps you can take. It may not feel like much, but positive action has a domino effect. Pretty soon, you’ll see those small steps start to add up and make a real difference. So don’t become daunted by the scale of the task at hand. We show you where to start and how to plan for a brighter financial future, starting today:

1. Check Your Credit Rating

It’s surprising how many people have never even bothered to find out their score, but that little number can have a massive impact on your financial health. How? Well, having a good credit rating means that lenders will offer you the best rates on their products, whether that’s a credit card or a mortgage loan. There are plenty of free tools where you can find out your score in seconds.

Create a Budget

2. Build The Rating Up

So now you know that vital number, how do you boost your score? There are a number of really easy steps you can take to improve your prospects. First of all, make sure you close any old or inactive accounts appearing on your report. The credit you will be offered is partly based on how much lenders believe you already have available to you, so if there are old things you’re not using, apply to have them formally closed. Second, check who appears as an associate on your account. There are usually other people listed who you may have been financially connected with in the past, such as a housemate. If these people have bad credit themselves, you can suffer by association, so apply to have them removed. Third, if you’ve never used much credit (or if you’ve misused it in the past) then consider taking out a credit builder card. These usually have a very high APR attached to them, so make sure you pay the balance off in full every single month. The card will allow you to build up a positive payment history, which will lead to you accessing better deals when you need them

3. Work out your budget

Another simple one, but it’s amazing how many adults don’t have an idea of their monthly budget. If you’re hoping to meet savings goals or just sort your finances out, you need to have a realistic picture of what you earn vs what you’re spending. Either go low tech and record everything you spend for a month on a spreadsheet or you can use an app that connects to all your accounts and monitors spending for you. Once you have a month’s worth of transactions, divide them into relevant categories, like entertainment and food. This really helps you to map out areas where you’re unintentionally overspending and could do with cutting back. Is that daily latte habit costing you more than you think? What could you do with the money instead?

4. Review your monthly utilities

There’s one area where loyalty doesn’t pay, and that’s when it comes to your utility bills. Make sure you’re shopping around for the best deals on gas, electric, internet and telephone services. Make use of comparison sites and don’t be afraid to use the information you find to negotiate with your current supplier. Saving a little money across all of your monthly bills can add up to a larger amount overall, which you can either save or have as more disposable income.

Save Money

5. Work out a savings plan

Once you have a clear handle on your monthly expenditure, it’s time to start thinking about your savings goals. For many, saving for something such as a house deposit or even just a holiday can seem impossible, but by doing a budget you will have identified areas that you can cut back. Each month, when you get paid, get into the habit of setting something aside, even if it’s only a small amount. The habit is actually more important than the amount itself. You could also consider using a savings app that rounds up your transactions and deposits the extra into a savings account for you. Combined with a weekly direct debit amount, this is a quick and painless way to get started with savings.

6. Understand your financial position

If you’re serious about improving your monetary health, then consider making an appointment with an independent financial advisor, who will be able to give specialist, qualified advice regarding pensions and investments and help to get you on the right track for a mortgage application if needed.

7. Get Covered

Understanding your insurance requirements is vital to getting your finances in order. Think about if you’re in need of income protection to ensure that if circumstances change, and your earnings are affected, you can still provide for yourself and your family.

8. Beware the Lifestyle Inflation Creep

If there is more money available to spend, most of us will spend it. So as we progress in our jobs and start earning more, a thing called ‘lifestyle inflation’ can creep in, where our spending scales up almost without us realising, and then we aren’t actually any better off each month. This can be damaging to your financial health because it curtails the ability you have to build up wealth. Don’t give in to pressure to keep up with neighbours and peers regarding the cars they drive and the holidays they take. Many of these people carry huge amounts of debt, so all may not be as it seems. Try to avoid the trap of escalating your spending with each rise in income. Some lifestyle inflation factors are unavoidable – like starting a family, which necessarily means a little more expenditure, but beware of living within your means and using extra income to save for retirement.

9. Practice Mindful Spending

Many people spend money almost blindly, justifying their purchases as something they ‘needed’ to get. But this kind of self-deception is not a healthy practice. Be honest with yourself, and you have the foundation for beginning to make better choices with your disposable income. ‘Needs’ really are the costs you have in order to survive – housing, food, healthcare. Most of everything else is a ‘want’. Don’t fall into the trap of spending every spare penny that you have. It’s good to have a ‘cushion’ of ready cash for unexpected emergencies. Equally, try to give yourself a cooling off period with those must-have spends. Instead of reaching for your card, try putting those ‘I must have it’ items on a wishlist until the following payday. Do you still want it after a month? If so, then there may a case for it, but you’d be surprised how much stuff you were dying to have can lose its appeal after you’ve had a chance to think.

10. Build an Emergency Fund

There’s nothing that can send otherwise well-maintained finances spiraling into chaos like an unexpected expense, and in life, there are usually plenty of nasty surprises. Be that falling into ill-health, an accident, being made jobless unexpectedly or a big-ticket item failing – things are guaranteed to go wrong at the least convenient time. An event like this is what sends many people into debt, not to mention the sleepless nights it can cause. A big savings goal for you should be planning for an eventuality like this. Aim to build up at least six months worth of living expenses over time – it’s a big ask, but probably the single most important thing you can do. You’ll be amazed at how liberating it feels to have this security. It also enables you to offset big, unexpected expenses that you’d otherwise have to go into debt for – just make sure any money you withdraw is paid back straight away. Have this payment as a regular expense item in your budget, and set up a transfer so this money is taken automatically from your wages, so you aren’t tempted to spend it.

Committing to a new way of financial living can be tough at first, and it can feel quite unfamiliar prioritising savings over our impulsive spending desires. But as you see that money start to mount up, and begin to feel the beautiful freedom of being covered in the event of something unexpected, you’ll be hooked. Cleaning up your finances needn’t be scary – all of the ten steps above are supremely easy to get started with. There’s no need to move mountains, as little actions can have a cumulative effect and will leave you in a much better position.

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