Everyone deserves to have financial freedom. We offer the opportunity to invest or borrow peer to peer loans for the better, but taking control of your financial situation goes beyond this. We want you to understand how to manage your money. In this article we look at the following areas:
- How to track your spending
- How to budget
- How to set your financial goals
- How to take on debts
- How to invest
- How to save money
- How to improve your credit score
Track Spending and Set a Budget
It takes time and commitment, but creating a budget is the best thing you can do to work towards financial freedom – no matter where you’re starting from.
Budgeting is the first step you need to take to understand how to manage your money. It’s easier said than done. On paper, it’s a simple, straightforward process that you know is the right thing, but the reality can be a lot more challenging.
Most people refuse to look at their bank account, let alone their credit card or loan balance, so if this is you, the truth can be difficult to face. But it’s worth it. You’ll feel in control by simply having a plan.
Track Your Spending
Before you create a budget you need to figure out exactly what’s coming in and out of your bank account on a monthly basis. All of it. Everything counts. You have to be completely honest with yourself in order to create an effective plan.
You can be old-school and track all of your purchases and bills in a notebook, or you can find an app to track all your spending and categorise them for you. Choose whatever process is easiest and will give you the most honest outlook.
If you have more money going out than coming in then you will need to refocus your spending. To figure out how to do this, first take an assessment of your income and expenses. This will help you develop a reasonable and realistic budget.
Categorise Your Spending
Now you’ve got a bigger picture you’ll be able to start sorting payments into various categories and patterns.
You’ll have your fixed costs – rent or mortgage, utility bills, minimum debt repayments. All these payments will come out on a monthly basis and are crucial to your standard of living. These are your needs. You cannot afford to miss them.
You’ll also have fixed costs that aren’t so detrimental but do improve your quality of life. The internet, your gym subscription, your phone. These payments you could survive without. It’s a good place to start looking if you need to scale back your monthly expenditure.
Then you’ll have irregular or fluctuating expenses. These are your groceries, dinner’s out, drinks with the work gang on a Friday. These costs will go up and down every month, so it’s important to set aside an amount to cover the things you need to live. AKA food. If you can only afford your weekly shop OR a few rounds at the pub – do what you need to survive.
Find Your Financial Goals
Now you have all the facts, it’s time to think about your future.
What do you want out of your finances? Perhaps you want to pay off all your debts. Maybe you want to put a deposit down on your first home or have a certain amount saved away in your rainy day fund to go travelling with. If you’re already in a financially secure situation, maybe it’s time to think about how to make more money by investing.
Once you’ve established what your financial goals are – you can start to create a plan. Sticking to the plan can be tricky, but it’s important to hold onto why you want to achieve these goals to avoid temptation or falling into old patterns.
There are various ways you can split your budget and how you use your money will be determined by your goals.
For example, if your goal is to become debt free, you might scale down your socialising budget or cancel some entertainment subscriptions in order to pay off more than the minimum monthly repayments. Pay off more on the high-interest debts first, whilst making the minimum payments on the rest. The more money you free up by paying off the high-interest debts, the quicker you can get to financial freedom.
Take On Your Debts
No matter what your budget is, if you have debts, don’t risk your finances unravelling by ignoring your debt. Late fees and interest can turn a small debt into an overwhelming one. Your debt should be a priority. Read our tips to reduce your debts.
There are two notable strategies to paying off your debt- both of which have seen great results and are well written about.
- The “Debt Snowball” method: Pay your smallest debts first. Seeing your debts paid down will help you build the momentum to keep going.
- The “Debt Avalanche” method: Pay debts with the highest interest rates first whilst paying the minimum payments on your low-interest debts.
How To Save Money
Saving money is a vital part of securing your financial future. You know it’s important, but it’s also incredibly easy to let slip from being a priority. That must-have festival ticket, those new limited edition trainers and sometimes even just being able to afford a weekly shop can take up the money you would have otherwise put away in savings.
Once your budget is in place, it will be easier to figure out exactly how much you can spend without it having a negative impact on your quality of life. If you don’t have a lot of disposable income to put into savings, you can start small. If possible, use features like ‘Spare change’ which rounds up your payments to the pound. This change will then be saved a separate pot, which no matter how little is still a starting point. You’re saving.
Apps like Plum or Squirrel will calculate how much money you can afford to put away based on your spending, so you don’t have to worry about running out of money.
There’s no right answer to how much you should be saving a month or how much you should have put away. It’s a case by case situation. But having a buffer to help with unexpected expenses can really put your financial worries at ease. And everyone could do with a little less to worry about.
How To Invest And Make More Money
Who doesn’t want to make more money?
If you’re particularly well versed in money management or happen to find yourself in a financially comfortable situation, it’s important to think about how to secure your future and use your money to make, well, more money.
More than just making more money, it’s useful to understand how to manage your money in a way that secures and protects your future finances. There are a number of ways you can invest your money and it’s good to consider more than one way to diversify your income. This way, if one stream of income fails you, you’ll be supported by other means. The less you can rely on one income stream, the more secure you’ll feel.
Invest In The Housing Market
It’s a bit of a tumultuous time for the housing market. Regardless of which side you fall on, Brexit will undoubtedly have a big impact on the UK’s housing market. But this doesn’t necessarily mean doom and gloom. If you’re a first-time buyer, it could be the right time to invest.
As we move closer to Brexit, house prices are beginning to fall. Now, there are no guarantees that the prices won’t drop further or dramatically increase, but if you’re already in the market to purchase, and you’re happy to wait out a long-term investment, now could be a time to put that deposit down and secure your assets.
Invest In Peer To Peer Lending
If a short-term investment is more suitable for your money management plan, then peer to peer lending could be the right option for you. P2P, also known as social lending, connects credit-worthy borrowers with lenders who want to earn a better rate of interest than they could find with traditional banking schemes.
At Leap, we want you to take control of your financial future. With a peer to peer investment, you can make up to 5% returns over 1-5 years. There are no fees to get involved and you can join our community from as little as £50. Invest for better returns to better someone’s life.
We mitigate the risks (link to risk page) involved with investing in P2P by diversification, positive financial wellbeing incentives and extensive vetting of borrowers.
Invest In An Innovative Finance ISA
An innovative finance ISA – sometimes called an IFISA – is an ISA that contains peer-to-peer loans instead of cash (as in a cash ISA) or stocks and shares (as in an investment ISA).
Invest in an innovative finance ISA and you’ll enjoy the benefits of peer-to-peer investments, whilst earning tax-free.
You can invest up to £20,000 as part of your annual tax-free ISA investment allowance, which can be transferred from other investments. And because you’re cutting out a bank by investing your money through an online portal you can earn around 5% compared to 1-2% on traditional ISAs.
Invest In Your Retirement
The future starts now! Even though you’re probably paying into a pension via your employer, it’s good to be clued up on exactly how much is going into your pension and what that might look like when you actually retire.
If you want a little bit more of a cushion for when you retire, you could start putting more into your pension pot. Retirement may seem like a distant goal, but your future self with thank you for saving now.
How To Improve Your Credit Score
Having a good credit score is the key to opening up many financial opportunities. Striving to improve your credit score is definitely something that should be part of your financial goals – as it could help you in the next step of your financial journey.
Depending on what validation service is used (CallCredit, Equifax, Experian) the scale can range from 0 to 999. 700 is often regarded as a very good credit score, whereas anything below 600 is considered slightly more challenging. The average credit score is about 600 – but this does depend on the service.
The number of your credit score is made up of a variety of different components, which are weighted individually. The areas that account for your score includes your payment history, the amount owed, the length of your credit history and how often you look for additional credit.
If your score isn’t exactly where you’d like it to be, you can work towards improving it by working on your money management. A better credit score will get you lower-interest rates and the best terms when taking out a loan or applying for a mortgage. Here’s how you can better it.
Keep Track And Budget
By keeping track of your payments and including your credit repayments as part of your budget you should be able to plan to work through your debts quickly, decreasing the chances of missed payments and late payment fees.
Pay On Time
Make sure all payments are paid on or before time. One little slip-up and a late or missed payment could completely unravel your finances and damage your credit score. Set up direct debits to make sure all the charges are paid automatically.
Pay Off Your High-Interest Debts First
If you can manage to pay down your high-interest debts first, you’ll free up money to take care of the rest. Especially if these are the debts that you’ve owned for the longest period of time as this will partially affect your credit score too.
Consolidate Your Debt
If you are overwhelmed by juggling debt because you have multiple credit card accounts and loans, you might want to consider debt consolidation. This is a way of streamlining all your debt repayments into one monthly repayment by taking out a loan. With p2p loans from Leap, it’s easier to keep track of your debts and work towards paying it off.
Explore the difference between credit card refinancing and debt consolidation and see if it’s the best route for you.
- To truly take control of your financial future you need to understand how to manage your money.
- The first step in money management is tracking your spending. From this you should create a budget and set achievable financial goals.
- There’s no correct way or amount to put aside into savings, but it’s important to save something – even if it’s small. Use apps to help you save without realising.
- You can invest your money to increase your income and diversify your income stream. There are short term and long term investments including real estate, peer to peer and innovative finance ISAs.
- Your credit score determines your ability to gain access to credit. Improve your credit score to attain better rates.
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