Not many of us have ever sought professional advice when it comes to our personal finances. We may have taken out loans and have the odd store or credit card. But not many of us can remember your APR or even the date that the repayments are paid each month. Pretty soon you can find you’ve missed something and a red letter arrives in your mailbox. A personal finance check-up could be a good way to get a clearer view about your money. And no, you don’t need a professional – you can do this yourself.
The simplest way to start is to total your income. This is the net figure that you have in your hand on payday. Spending more than this each month will see in you financial trouble. So the next task is to determine exactly what you are spending! Lots of us know roughly where the cash is going, but have you ever made a detailed spreadsheet to itemize it all? You may be thinking this sounds like a lot of work, but it only needs to be done once. As you take out new personal loans, subscription contracts or credit cards, you can simply update the list.
Forecast the repayment date
Don’t be horrified by your bottom-line figures. We all make mistakes because the system simply isn’t transparent enough. But now you know there is the potential for a problem, you can fix it. Check what your repayments are on each of your credit cards and loans. Can you forecast when your final repayment date is to clear each of them? This would be the date you could become debt free (excluding mortgage or student loans tied to your salary).
Negotiate your loans
There are ways to bring that date forward. You could renegotiate the terms of fixed-term loans. You may be able to consolidate or move your loans to a different provider with a lower APR, fees, and repayment schedule. This isn’t always possible or practical. And there is a chance you may increase your debt and the amount repayable. This is why it is important to detail everything you can about each loan to know exactly what you are paying for.
Set a budget
You might be keen to set up budgets for each area of your life. You might have a ‘going out’ fund, and a ‘vacation’ pot. These are little saving pots you can contribute a set amount to each month. However, if your debts are overwhelming you, it might be best to use these ‘disposable income’ funds to cover them. Savings are nice to have, but not if your debts are costing you money in interest. After all, you’ll never earn better interest than you pay.
There is one savings fund you might not want to dip into. Your pension fund may be self-contributory or part of a company scheme. Some schemes will penalize you if you stop or reduce your payments in. Another area of savings you might be reluctant to put on hold is a deposit fund if you’re trying to get on or move up the property ladder.
Part of your personal finance check-up could include prioritizing these different areas of your life. Be financially well.