If there’s been anything worth keeping from 2020, it’s the lesson that we cannot control the future. For this reason, many have ditched the age-old need to plan extensive New Year’s resolutions (that inevitably fall by the wayside before March) in favour of smaller-scale, realistic goals.
And we at Kestrl are no different! We believe goals should be centered around your present situation — and personal finance goals are no different. This means that focusing on your most urgent financial concerns, which for many have been amplified during this pandemic, is the key to gaining control over your finances. These are essentially your short-term goals, which we define as any financial goal set with a deadline of 2–5 years.
As you tackle your short-term goals, you will develop certain habits and skills, such as budgeting, or setting aside monthly savings. Once these skills are honed — and you have a budget and sufficient savings in place — you can begin thinking about longer term goals. Here are the 6 steps we’ll be following for healthy financial planning in 2021:
1. Think small
As the future is uncertain at the moment, thinking short term is a more practical way to look at your finances. This doesn’t mean that you scrap your big future goals, but rather think about your current situation to help manage your finances right now.
If you are currently managing to pay your bills and other outgoings, your next step could be to put money into an emergency fund for any unexpected costs that may come up. If you are struggling to keep up with payments then taking a look at all your outgoings and identifying any areas you are able to cut costs is a good first step to keep you on your feet. Don’t start by making lots of unrealistic goals for yourself in the New Year; instead, set yourself some manageable, realistic money saving goals which you can see yourself fitting into your current lifestyle.
2. Create a monthly budget
Once you have identified some manageable goals, reviewing your finances regularly is important to know exactly what is coming in and going out. Planning ahead and creating a budget for your spending is key to keeping on top of things.
A great way to do this is by dividing your spending into different categories and making sure you can cover all your essential costs for the month before purchasing any non essential items. An app-based budgeting tool like Kestrl, can help make this process easier by organising your cash inflow and outflow, to keep you on track with your budget. This will allow you to see exactly where you are spending your money and where you could make any cost saving changes, e.g. cancelling subscriptions.
After tracking your spending over a period of time, Kestrl will automatically create a budget for each of your chosen categories based on your income and expenditure. This means you can stick to a budget without the hassle of carrying out those dreary calculations yourself!
Your budget will constantly be changing as every month is different, and unexpected costs will always occur. Despite the uncertainties, ensuring you always have more money coming into your accounts than leaving them, is a great rule to remember when budgeting.
3. Consider your debts
If you are in any kind of debt, it has to be a priority to manage this. Although debt can become a problem, it’s important not to feel down or demotivated by it. Debt is incredibly common in the UK; even before the pandemic, the Money Advice Service estimated that 8.3 million people in the UK were in debt, and that 22% of UK adults had less than £100 in savings.
Rather than feeling down about debt, it’s crucial to deal with it proactively and pragmatically. This will vary depending on how small or large the debt is, and who the money is owed to. If you are struggling with repayments, stick to minimum payments or consider contacting the people you owe money to before it becomes a problem. If you cannot work, check for insurance policies that will cover mortgage repayments, loan repayments or that could replace some of your income. There are also plenty of external helplines that offer free financial advice if you are struggling to manage your debts, such as the Money Advice Service.
If you are in a position to be paying off your debts, then make this a priority while you have the extra cash. The quicker you pay off your debt, the less interest you will have to pay and the sooner you can get on with saving for more exciting things in the future!
4. Look into money-saving options
The British government has introduced a number of schemes to help people who have seen their working hours affected by Covid-19. There is help in place for those who can’t work due to restrictions, have had their hours reduced or are self-employed. The type of support available changes frequently and you can find the latest news and information on what help the government is offering on the GOV.UK website.
The government is also offering tax relief to cover costs that working from home may induce for many. If you have been working from home over the pandemic period and you or your company haven’t already reviewed your tax code then do so now. It’s super easy to check if you’re eligible for tax relief and apply here. This is a great way to reduce your expenditure and pocket some extra savings.
There are also several ways to cut the costs of your bills at home. The Simple Energy Advice website offers tips on how to save energy and reduce your bills. Looking into switching suppliers and/or contracts is another way of raking in those extra savings!
5. Budget for fun!
Being frugal with non essential spending, and trying to save, does not mean that you’ll become militant with your money. Make sure that you don’t cut all the fun out of your budget. The global pandemic is on-going and the future is unknown, so it’s important to keep some joy in your life, even if this means little treats every once in a while!
6. Invest for the future
If your budget allows for it, investing is a fantastic way to grow your savings and overall wealth, especially when planning for the future. Remember that investing is best for longer term goals, so we encourage tackling immediate and short-term goals before attempting it.
Although investing can feel overwhelming if you’re just starting out, Kestrl’s upcoming marketplace aims to make it simple and accessible by removing jargon and barriers to entry. Complete with fully sustainable and halal investment options, as well as a net wealth calculator to help you visualise your wealth increase, it is not to be missed! Be sure to stay tuned to our blog, follow us on Instagram and sign up to our newsletter, to stay up-to-date on all our product launches. And of course — download Kestrl for free from the App Store or Google Playstore!