Christmas is over for another year – and right now, your bank balance may be looking particularly worn-out after all that festive spending. Here’s how to give your finances a fresh start for the new year.
At this time of year, many people are wondering how they’re going to stretch what’s left until their next payday. But while it may feel like we’re doomed to repeat the same spending patterns year after year, it doesn’t have to be this way – 2019 could be the year when everything changes.
We caught up with Sarah Coles, personal finance analyst at Hargreaves Lansdown , who shares her 10 steps to get your spending back on track…
1. Start a spending diary
Most of us find it difficult to work out where our money is going. Keep a spending diary for a few weeks, to highlight expensive habits or hefty bills. Mark each expense as either essentials you can’t live without, or luxury spending. Keep a notebook handy, or use an app.
2. Shop around for essentials
You can’t cut out essentials like utility bills, water charges or insurance, but you can cut the costs by shopping around. If you haven’t switched for a while, you can shave hundreds of pounds off annual bills. Put aside some time with comparison websites – you’ll be amazed at what you can save.
3. Cut out luxuries
They might feel like vital ingredients for a happy life, but your morning takeaway coffee, Friday night drinks or Saturday takeaways aren’t essential. If cutting them out feels painful, bear in mind that by ditching your morning coffee, or only going out every other Friday, you can save enough cash for something else fun – such as a holiday.
4. Pay off debts
When you’ve cut your costs, prioritize paying off any expensive debts. Hargreaves Lansdown’s research shows that of those people who set a budget for Christmas, 57% of them spend more than they budgeted for – by £153 on average. More than one in 10 who set a Christmas budget bust it by at least £300. For many people, this is just adding to the pile of debt they’ve built up over the year. Sticking with minimum repayments will mean your spending mistakes haunt you for months, or even years, so commit to making regular monthly repayments the day after payday.
5. Manage debt wisely while you’re paying it off
You can’t pay it all off overnight, so make sure you’re not spending a fortune on your borrowing in the interim. Hargreaves Lansdown’s figures show that more than one in 10 people pay for their festive overspend by dipping into their overdraft – which can be an expensive way to borrow, and can set you back more than £50 a month. Switch to the cheapest possible method of borrowing, so your repayments are paying your debt off rather than servicing it.
6. Don’t use credit limits as an excuse to keep spending
If you get a new low-interest loan or credit card, it’s tempting to take advantage of your full credit limit. However, this simply means running up more debt and building a bigger problem. If you’re going to get back on track this year, fight the temptation.
7. Build an emergency cash savings safety net
Once you have paid off any expensive short-term debts, money you’ve saved each month can be channelled into an easy access savings account. The aim should be to build up three to six months’ worth of expenses which you can use in an emergency.
8. Ditch old savings accounts
If you already have savings, check the interest rate you’re earning. If you haven’t switched for a while, there’s a good chance you’re earning a pittance. Shop around for a better rate. Consider whether you can tie up some of your savings for a year or longer in return for a better rate.
9. Put financial dates in your calendar
They’re not the most thrilling diary entries, but it pays to know when insurance policies are up for renewal, or savings bonuses or interest free credit periods expire, so you can switch and save.
10. Don’t neglect the long term
It’s important to revisit pensions and investments once a year, to see if you’re on track. If you work, your employer may have automatically enrolled you into a pension. Check how much you have put away and where it is invested. An online pension calculator will help you see whether you’re on track for retirement, or whether you should consider contributing more or changing your investments.