Looking after your personal finances is an extremely important part of life, ensuring as it does that you are not only surviving the short term but shoring yourself up for the long term. With high inflation continuing to be an issue for household budgets, keeping and growing your personal finances is a more difficult – yet more important – task than ever. How might you approach it?
Stabilizing Your Position
First and foremost, you need to stabilize your financial position. This means ensuring your income is regular and secure, and addressing your debts before anything else. You cannot save effectively if you have a credit card or loan debts to your name; their interest rates will always win out over your savings. As such, consolidating and paying your debt first should be a priority.
Assessing Your Finances
This step can, in a sense, take place alongside the above step, but any useful information you can work with for the betterment of your finances will only come after you have established a regular baseline for your finances. With debts consolidated and organized, if not paid, and with a regular source of reliable income, you can now look in greater detail at your financial situation as it stands.
Here, you are hoping to get a more comprehensive picture of your income and outgoings. What do you earn per month, and how much is paid each month towards regular costs such as utilities and rent or mortgage payments? What is left behind, and how much of that on average goes towards semi-variable costs such as food, transport, and leisure? From here, you can make precise changes to your budget in service of greater short-term savings.
Before you take any further steps in arranging your finances with growth in mind, here is an opportunity to seek third-party counsel on your present situation. As someone who likely isn’t a financial expert, you might be worried about making moves that endanger your finances as opposed to improving them. As such, you might want to reach out to a financial planner or investment expert to advise you on your position, possibilities, and tax responsibilities.
But this should come with a word of warning. Not all financial experts are made equal, and there is always the chance that you receive improper, incorrect, or even illegal advice tantamount to financial negligence. While a civil case could yield compensation, this would not be an optimal eventuality for your finances – and should be considered accordingly.
A standard route to growing your personal finances might be to lock large portions of any monthly savings away in savings accounts with relatively high rates of interest. This is absolutely fine, but by no means the most efficient way to grow your savings. Instead, you might invest your money.
Investing is not the high-risk, high-reward trading of stocks and shares known as ‘day trading’. For many amateur investors, day-trading in hopes of gains is little more than gambling. Investing, rather, is the shrewd purchase of stocks, shares, and assets for long-term gain.
The best way for any individual or ‘retail investor’ to do this is through index funds, managed by third-party brokers, that track the growth of numerous businesses in a given market or sector. These funds spread risk and maximize returns – especially when invested in via a stocks and shares ISA, which offers tax relief on capital gains.