10 Tips for Financial Planning

Effective financial planning can enable you to get on top of your finances and avoid stressful experiences of debt. To make the most effective use of any financial plan it is important to consider what steps will actually make a significant difference. These are some common sense ideas which will help to create a workable solution to even the most difficult of problems.

1. Be Realistic

If you plan to reduce your debt by £10,000 in a short space of time, you will only be setting an unrealistic target. It is better to plan to achieve manageable reductions in debt and target a gradual improvement in finances. Unfortunately, there is no magic wand we can wave to solve our financial problems. However, if we our conscious of our financial goals then gradually our situation will improve.

2. Be Aware of Current Situation.

Often the key to improving our finances is simply understanding our current situation and why we are going overdrawn. Sometimes we prefer to ignore our financial difficulties but this only compounds the situation. To have effective planning, we need to know where we spend our money. This alone can be a bit of an eyeopener. If we realise how much we spend on takeaways or magazine subscriptions, we would think much carefully about whether we want to keep spending money on them.

3. Prioritise

When planning your financial future, it is important to prioritise your most important goals. What do you want to aim for? If your aim is to reduce your debt, set aside a certain lump sum from your monthly income to pay off the most expensive debt.  Don’t spend your time and energies in worrying about very small bills or moving money for very small amounts of interest savings. Value your time and prioritise in dealing with the most significant problems first; this will give the biggest return. As many suggest often 80% of our improvements can be made by focusing on 20% of our tasks. Look at your biggest bills and out-goings first; if you can make savings here, then you will have a good chance to make a real difference.

4. Make it Simple

The key to good financial planning is to make it simple and workable. If you have very complicated plans which require careful calculations and frequent balance transfers, you will be spending too long in managing your affairs. The simpler the planning is the more likely you are to stick to it and make it work.

5. Set Targets

A good plan should have a clear goal to aim for. This could be reducing debt by £2,000; increasing income by £2,000 or just saving up a certain amount. If the targets are achievable they will give  a sense of satisfaction when attained. This will encourage to set more optimistic targets the next time. A sense of continual progress is important for developing a positive attitude to money.

6. Be Clear of the Rewards

Financial planning invariably involves making some sacrifices such as reducing spending and putting money aside. We tend to think of these sacrifices in a negative way. But, rather than dwelling on lower consumption levels in the future, remember the long term benefits. At the end of the year use your savings to reward yourself in a memorable way such as buying a good you have long wanted.

7. Don’t spend all your time making plans

Planning is important, but don’t make this mistake of wasting too much time in creating complicated plans. At first, keep the plans simple, when you see that you are sticking to them you will be able to consider more details and target further areas of your spending and income.

8. Understand the Financial System.

If you struggle to understand the difference between tracker mortgages and interest only variable mortgages, it is not going to be difficult to make the best decisions. Take time to learn important concepts; don’t be shy of seeking experts who will help you choose the best products. However, even taking expert advise can be confusing if we don’t understand what they are advising about. Unfortunately, financial education is rarely taught; invest some time in understanding key concepts in the financial system.

9. Snowball.

Don’t forget the power of making small overpayments or small saving commitments. If you make a little extra effort now, the future benefits will be much greater in the future.

10. Don’t just think of next 12 months.

If you only plan to cope with the next year or so, you will be storing up problems for the future. The best time to think about a pension is early on; this maximises your investment and can enable the maximum tax benefits.

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