It’s the start of a new year, so many people are inevitably starting to consider changes they can make to help them lead an easier and more comfortable life. Many people will focus on different areas, varying based on what bothers them the most and what they’d most benefit from changing.

Health, fitness, diet, relationships, habits and more tend to feature highly in resolution lists. But one area you could focus on that could entirely overhaul your day to day life is improving your finances. Whether your finances are out of check, or whether you’re on track and simply want to be able to save for a high end or valuable purchase, some of the advice below should help to get you along the way. Take a look and see what works for you!

Budgeting

Everyone needs to live according to a budget. Sure, some people may have lavish budgets and others may have really tight budgets. But one thing is for sure – a budget is absolutely essential to help you manage your money, understand what you can and can’t afford and prevent you from overspending and slipping into debt. Put simply a budget will allow you to:

• Have a clear outline of your income.
• Know how much goes out in compulsory payments such as taxes.
• Know how much of this is available to spend.
• Understand the monthly cost of your bills.
• Be aware of your disposable income.

Creating a Budget

So, where should you start out when it comes to creating a budget? Well, a few simple steps should help to get the show on the road.

First and foremost, you’re going to have to work out your total income after tax and other compulsory contributions. All too many people make the mistake of seeing their salary, dividing it by twelve and thinking that’s how much they can spend each month. This isn’t the case. You’ll be subject to taxes and other nationally-dependent charges, such as national insurance. The amount of tax you have to pay will depend on the tax bracket you fall into, with people who earn less money generally paying less tax and those who earn more paying more. Once you’ve figured this out, you will know your take home pay. If you’re struggling to figure out your take home out, don’t worry. There are plenty of easy to use online calculators that are completely free to try out that will help you with this!

When you have your take home pay, you need to figure out how much of this you need to put aside for essential living costs. There are certain things in life you’re simply going to have to pay for – namely food, energy and shelter. So, make sure to total up your monthly essential outgoings, which tend to include rent or mortgage payments, things like council tax, energy bills, water bills, grocery shopping and any payments you may need to hand over for agreed contracts you’ve signed. This could include car payments, insurance payments or finance, credit card and loan payments.

Once you’ve figured out how much you have left after paying for the essentials, you’ll have your disposable income. This is the amount of money you have available to spend on whatever you want. This will differ from one person to another. Perhaps you’d like to go to the cinema, out for food, save for a holiday or something else. Just make sure that you don’t exceed this amount, or you’ll be spending money that isn’t yours and you will find yourself in debt.

Debt

As we briefly highlighted above, overspending results in debt. Of course, debt can play a major role in your life – often, a detrimental one. You’ll find yourself working hard to pay for things you’ve already had or experienced. It can be draining, daunting and overwhelming. For most, it is a largely negative experience. But whether you’ve taken out credit cards, loans or have been borrowing against cryptocurrency, there are plenty of ways to get out of the red and back into the black.

Coming up With a Plan of Action

First, you need to come up with a plan of action. Don’t clear your debt aimlessly with random payments to random debtors. Instead, by being logical and strategic with your payments, you can clear your debt more quickly and can even boost your credit score in the process. A financial advisor will be able to help you with this, or there’s plenty of free advice available online. Some clever steps to take include:

• Knowing the interest on each of your debts.
• Resolving to pay high interest debts first and low interest debts later.
• Figuring out how long it will take you to clear each debt with set payments.

Consolidate Your Debt

Often, people who are experiencing debt have more than one form of debt. Perhaps you have a credit card and a loan, a few credit cards or a few finance agreements. It’s important that you are aware that you can make paying these debts off more simple and straightforward by consolidating your debt with a debt consolidation loan. This will allow you to put all your debts in one place, often at a lower interest rate than the multiple debts combined. It also reduces your chances of missing payments and incurring fines.

Balance Transfer

Many credit cards offer interest free balance transfers. This will allow you to transfer existing debts to a card and to have a set period of time to chip away at the balance without worrying about having to pay interest.

Of course, different approaches work for different people in different circumstances. But hopefully, at least one of the points above should help to guide you on the path to financial success. If you’re ever in doubt or unsure of your personal situation, consult a financial advisor who will be able to give tailored advice to your individual circumstances. But until then, choose a couple of areas of focus outlined above and you should get off to a good start!