Want to figure out your finances?

Talking about finances can often be a touchy subject. It’s not something we’re not actively encouraged to discuss or, more detrimentally, educated about. With it all an unspoken secret, figuring out your finances can seem daunting. So, today, we wanted to give you a quick rundown of the core pillars of finance. An insight into how to change your money behaviours and forge the financial future you want. All with the knowledge and expertise of Lisa-Conway Hughes — an absolute money management powerhouse and keynote speaker.

Need to know info

Before you start, consider the answers to these questions:

  • Think about your families financial situation when you were 8. Can you see any parallels in your money behaviours?
  • Do you split your income into pots? How do you currently handle all of your short, medium and long term financial goals?
  • Consider your financial future. What pensions do you want, what sort of lifestyle do you enisage and what assets (holiday let, cars etc) are you looking to purchase?

Assess where you are 

The key to figuring out your finances is establishing your baseline. This not only looks at the basics of incoming and outgoing costs but your debt and money behaviours. Once you’ve got all of these aspects established you’ll have a really clear picture of your starting point. 

Your finances today

Get an accurate view of your current financial situation by working through this list:

  • Access a year of statements. Average your monthly incoming and outgoing costs.
  • Where is it going? Do some digging to see exactly where your money is going on a month-by-month basis. Get as granular as looking at how/when you purchased gifts, ate out, clothes shopping, gadgets and self-care. Being honest with yourself is key to creating a plan that will work for you.
    Do you have any debt? Put into a spreadsheet how much you owe, to whom and the interest it accrues annually. Rate them in order of difficulty to pay off.
  • If so, why are you in debt? Lisa highlights that we often see parallels in negative spending behaviours with our family's financial situation when we were eight. Perhaps you have always had enough, so you never had to worry about spending, had relatives taking out loans or using credit cards regularly or never had a lot, so now feel free to spend what you like. Looking at your money behaviours objectively can give insight into where you might be slipping up.

Looking forward

Next up is to think about your medium and long term goals. Here you have to think about what you want for yourself in the next 5 years, 10 years and beyond. 

  • Consider what sort of annual ‘income’ you want to give yourself in later life. Take into consideration when you would like to retire and your desired quality of life. 
  • Get to know how pensions work and their relationship to tax. Lisa notes how you can legally manipulate the percentage of tax you pay if you're on the cusp. For example, a £5K pension payment for someone on a £55K wage can move them from the 40% to the 20% tax bracket. 
  • Look into pension providers. Your employer will opt into a provider for you by default. However, you have the power to change providers or open a personal pension account. 
  • Are you going to be saving for a house, car, wedding, travelling or whatever is on your horizon? Estimate when you might need the money and exactly how much. 
  • Think about potential or aspirational increases in your income over the next few years. Do you have an estimated salary or promotion you’re looking to hit? Or is your income from your own business likely to change over the coming years? 

Create new money habits 

Now you have your starting point and some goals set out for the future, it’s time to put your money where your mouth is (pardon the pun). Creating habits that can make these aspirations a reality and that have the potential to give you the financial freedom you’re seeking. 

  • Money pots. Lisa recommends splitting your income from the moment it hits your account. Essentially, you want to split your wage into several ‘pots’ or direct debits. These pots should include: 

1) Your own spending money for the month

2) Pots for regular outgoings like bills and your rent/mortgage payments

3) Pension

4) Tax 

5) Payments that come up on a year by year basis such as gifts, hobbies, holidays etc. These pots will be different for everyone. 

6) Investments (this should only be when you have an emergency fund - see below).

  • Your emergency fund. Everyone should have a backup emergency fund, equivalent to about 3-6 months of living expenses depending on your situation, Lisa says. This sounds like a lot but is essential before you start investing as gives you a safety net in the event of any financial hardship. 
  • Using your diary. Lisa is a big supporter of using your calendar to benefit your back pocket. Assign each month a different financial task. For example, every January, spring-clean your contracts. Either remove them or get in touch with your supplier to see if you can access a better deal. 
  • Share the load. If you live with a partner split the monthly financial tasks. Sit down together and plan how to help each other with your finances and lighten the collective load. 
  • The snowball strategy with debt. Paying off debt can seem overwhelming. Lisa recommends using the snowball method. Of course keep up with your monthly payments but any extra cash you have left over, pool that money into the debt that is easiest to pay off. The initial win gives you a boost of motivation to start paying off a little of each remaining debt gradually to reduce interest.

Expand your financial horizons

Now you’ve got a great set of money management habits and an emergency fund sorted, you can look to start investing. Whether you’re new to the game or have been investing for a while Lisa has some investing advice that can help you to maximise your money:

  • Use an ISA. It protects your investments from capital gains tax. 
  • Pay in monthly. As the market moves, you can benefit from the fluctuations in the market. This is called pound cost averaging - which essentially tries to protect your investment from drops in the market. Instead of investing a large lump sum which may be subject to a drop, only the small portion invested at that time will suffer the loss. 
  • Understand your risk tolerance. Some of your investment pot might be money you want to access in the next 5-10 years so you may be more risk-averse with that portion. However, there might be some money that you’re not looking to access for longer periods (20 years, for example) which you can take more risks with. Generally, if you take a measured risk over a long period you can expect to see returns. 
  • Digging into what you’re invested in. Often people just assign their investment pot to a firm who do the investing for them. With online investment spaces making it more accessible to see where your money is going, look into exactly what you're investing into.  

Put simply, figuring out your finances is all about switching up your money management behaviours, cluing yourself up on where your money is going and thinking about longer-term plans that go beyond your next holiday. Looking after your finances doesn’t have to be a chore but simply a way to access your aspirational present and future lifestyle. Feel inspired to make some more habit changes? Check out the rest of our blog for advice on mental wellbeing, leadership, motivation, overcoming adversity and more. 

💡 Finally, if you’d like to have a PepTalk of your own with Lisa-Conway Hughes to give your employees the power to focus their finances, get in touch with our team. 

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