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A Simple Money Management System

The definition of financial wellbeing is a feeling of certainty and empowerment around your money, both now and for the future. Setting up an effective yet simple money management system is certainly one way of helping to achieve that and gaining valuable peace of mind at the same time.

Can you image a beautifully organised walk-in wardrobe? With a place for all your clothes, shoes, bags and more. For me something like the Great Gatsby, comes to mind, with all his shirts and suits perfectly tidy and organised.

Now imagine the opposite, all your belongings just thrown into a pile or dumped into an inflatable paddling pool. Every morning you rummage through trying to find a matching sock, or a top which is not too obviously un-ironed. If this feels a little extreme just picture a typical teenager’s room to get the idea.

Its safe to assume that most of us would prefer door number 1, the organised, systematic and tidy system for the ease, comfort and certainty it brings.

After this detour into home makeovers, you may be asking what has this got to do with personal finance? Allow me to explain…

A Simple Money Management System - image of a tidy dressing room / wardrobe

In many cases our bank accounts and financial lives are more like the paddling pool than the tidy, well-ordered system.

Money comes in and flows out but we are not entirely sure how much or to where. There are direct debits and standing orders, credit cards, PayPal, Apple Pay and who knows what else. All in the big paddling pool and we hope that the important bills are paid and there’s a little money left at the end of the month.

Surely there is a better, less stressful way?

The first step is to know your numbers. This was explained in a previous post, so if you haven’t read that one yet you might like to catch up when you can.

But assuming you have a pretty good understanding of how much you earn and how much you spend, here is a 3 step plan for an effective yet simple money management system.

  1. Additional Bank Accounts

Opening an additional bank account can be easily achieved by either contacting your existing provider or perhaps opening a new one with one of the online banks such as Revolut or Starling. (If you are listening outside the UK – firstly hello and secondly there will be equivalent banks local to you). I suggest having 2 current accounts plus a savings account.

2. Pay Yourself First

Rather than waiting until the end of the month and hoping there is a little money left to move to savings, after all the bills and everyone else has been paid, make yourself a priority.

I am going to suggest you set up an automated transfer for two amounts. The first is for savings, the second for Walking Around Money. Let’s concentrate on savings first. Take a proportion of your income and move it to a new or existing savings account.

How much, well that depends on your circumstances. In some ways the habit is more important than the actual amount. Because you are showing yourself and the universe that you are now taking control of your finances and honouring your financial future by paying yourself first.

As a rule of thumb aim for 10% of your monthly income, more if you can but less is ok if that is what your current circumstances will allow.

The second transfer is for your Walking Around Money, or WAM. This is discretionary income which is not already allocated for bills, food or credit card repayments for example.

Again, knowing your numbers is crucial here because by understanding how much you need to cover your monthly costs, you will also know how much you have left to spend as you please.

You can transfer your WAM either monthly or weekly to your newly minted second bank account. Then only use this account for your day to day spending, secure in the knowledge that it will be topped up again at the end of the week.

3. Using Your Primary Bank Account

Your original bank account is used to receive your monthly salary and from it you pay all your bills and regular expenses. You feel secure knowing that all your expenses are covered and automated. Then you can leave that account to happily run along in the background, with just the occasional check to make sure you have included everything and there is always a small positive balance.

Meanwhile you have a growing savings account thanks to your regular contributions and a weekly allowance which you are free to spend as you like.

So there you are an effective yet simple money management system that you can have up and running in less than an hour but will save you time, effort and worry for years to come.

If you liked this post you will enjoy listening to the fearless finance podcast. I look forward to having you join the growing tribe improving their financial wellness together.

5 Tips To Keep Your Mortgage Repayments Low

The average mortgage payment in the UK is £723 per month with an interest rate of 2.48%, according to property experts. However, repayments vary greatly depending on many factors. 

Whether you’ve got your eyes set on a property already or you are simply exploring the real estate market, one of the most important questions you need to ask yourself is: How can you make your mortgage payments more manageable? 

Some tips can help keep your mortgage costs as low as possible. 

#1. Avoid banks, go with a broker

Unlike a banker, a mortgage broker can help find the right mortgage deal for your situation. Brokers are more likely to get you a special rate from money lenders through their connections. As a unique client, you can’t negotiate a lower deal. Yet, a broker can rely on the volume of business they generate to obtain the best possible deal for you. 

Additionally, brokers are also more likely to manage your fees and application process, helping waive high costs in the process. 

#2. Consider your deposit

Typically, your down payment will range between 20% and 40% of the property value. While you can secure mortgage loans with as little as 5% deposit, you want to make sure you can save ahead for your down payment. Being able to pay upfront a high deposit has two important advantages:

Firstly, it can make your price offer more attractive to the property seller. 

Secondly, it also reduces the total mortgage amount, which means you can make monthly payments more affordable. 

#3. Improve your credit score

Your credit score affects your creditworthiness, aka the kind of loans you can apply to. You are more likely to find cheaper mortgages with a higher credit score. Boosting your credit score takes time. Check your annual credit report to review the data available about your finances. Errors can have serious consequences, so make sure credit report agencies have the right data. If you have a joint financial product with your partner, it’s worth checking that their financial history doesn’t affect your score. 

#4. Refinance your mortgage

In essence, refinancing your mortgage means you take out a new loan to replace the former mortgage. Refinancing can save you a lot of money if:

  • Your credit score has improved significantly
  • There are better mortgage deals available with lower market interest rates
  • Your home’s value has gone up, so you’re available for lower rates

You don’t have to wait for your current mortgage to come to an end, and you can search for a better deal up to 6 months before your current deal stops. Typically, mortgages provide a fixed rate deal for 2 to 5 years, after which your interest rate may increase. 

#5. Overpay your repayments

Not every lender is happy to let you pay more than agreed per month. However, if your lender is willing to let you increase your monthly payment amount, it can be worth considering repaying your mortgage sooner. It’s a great option for those who have made unexpected capital gains through inheritance or non-taxable wins. 

Keeping your mortgage fees as low as possible is no easy task. However, you have many options to ensure you get the best deal and manage your wealth in the most profitable way. 

Everything You Need to Know About the Financial Aspects of Buying Property

There are many important financial considerations when buying a property. Therefore, it’s crucial to understand all the costs associated with the purchase to decide whether or not to buy. This blog post will discuss some of the critical financial aspects of property buying. 

Everything You Need to Know About the Financial Aspects of Buying Property - dream house at sunset image
Photo by Alex Staudinger from Pexels

1) The Down Payment

One of the most important financial aspects of buying a property is the down payment. This is the amount of money you pay upfront to secure the property. The down payment usually ranges from 20% to 40% of the total purchase price, although many exceptions exist. 

If you don’t have enough cash saved up for a down payment, you may be able to get a loan from a bank or other lending institution. However, be aware that taking out a loan will increase your monthly payments and could also add years to the time it takes to pay off your mortgage. 

2) The Mortgage

Once you’ve saved up enough for a down payment, the next step is to get a mortgage. A mortgage is a loan from a bank or other lending institution that enables you to purchase a property. The mortgage will have specific terms and conditions, including the amount of money you need to borrow, the interest rate, and the length of time it will take to pay back the loan. 

It’s essential to shop around for the best mortgage rates and different mortgage brokers, as they can vary significantly from lender to lender. Also, be sure to read all the fine print before signing any paperwork! 

3) The Closing Costs

In addition to the down payment and mortgage, there are also closing costs associated with buying property. These are fees charged by the lender, real estate agent, government, and others involved in the transaction. Closing costs can add up quickly, so it’s important to factor them into your budget when considering whether or not to purchase a property. 

4) The Maintenance Costs

Once you’ve purchased a property, there will also be ongoing maintenance costs. These can include things like painting, repairs, landscaping, and more. It’s important to factor these costs into your budget when deciding whether or not to buy a property. 

5) The Property Taxes

Another important financial consideration when buying a property is property taxes. These are levied by the government and can be a significant amount of money, depending on the property’s value. Therefore, it’s important to factor in property taxes when budgeting for your purchase. 

6) The Insurance

When you purchase a property, you will also need to get insurance. This protects you in case of damage to the property or if someone is injured while on the property. The cost of insurance will vary depending on the property’s value and the location. 

There are many important financial considerations to consider when buying property. By understanding all the associated costs, you can make an informed decision about whether or not purchasing a property is the right choice for you.

The 7 Pillars of Financial Wellbeing – Awareness

Awareness – Understanding where you are now, where you want to be and creating a plan to get there

If you were asked how much money is in your bank account right now, how accurate could you be? Within £100? Within £10?

If that was challenging, you are not alone. When I ask that question to a group, the majority has no idea.

Yet most of us know how much we earn and will soon notice if an expected sum on payday is different by even a small amount.

So what’s going on? It would follow that the gap in our understanding is in how much we spend.

if you would prefer to listen to this post it is available on The Fearless Finance podcast

The 7 Pillars of Financial Wellbeing - know your numbers. The importance of awareness - looking in a mirror image

I remember travelling one time and allocated myself a budget in the local currency in cash. Everything I spent, physically came from my wallet and I could easily see at a glance how much was left. Setting aside money for a coffee at the airport and a taxi to get there, I was pretty confident and certain how much I could spend throughout the week.

And it feels good to be certain.

Contrast that with how most people manage their money day to day. It arrives electronically and leaves electronically and if we only glance at a balance once or twice a month, we really have no idea how much is available.

Rather than certainty, we are in the realms of assumption and denial.

Know Your Numbers

A great starting point in financial planning and regaining control of your money is to know your numbers.

Make a list of your regular outgoings, housing costs, food, transport, subscriptions etc. Next add on other spending, which is less predictable such as nights out, or clothes maybe.

If you total the list, you now have a pretty good indication of how much you spend each month and where it goes.

If you enjoy being even more granular you can use tracking apps or a spreadsheet to dig deeper or automate the process.

To some this may seem like a bit of a pain, but the process can be liberating in several ways.

If you were thinking about changing jobs or starting a business, now you know how much you need to earn as a minimum.

By comparing with your current income, you can see how much of a surplus or deficit you have each month. If a deficit you can take action to reduce or re-evaluate your spending. A surplus can be directed towards saving, investment or paying off debt.

A good practice is to pay yourself first by taking some of your surplus at the start of every month, rather than waiting to see what’s left at the end.

A third benefit is becoming more conscious where you are spending your money. If petrol is costing you X hundred pounds a month, how much could you save by taking public transport? If home heating bills are spiralling, maybe it’s time to nudge down the thermostat? Small savings add up and its better for your wellbeing to be in control rather than in denial.

Setting Goals and Plans for The Future

One of the most popular categories for New Year’s resolutions is around money. Many people set well intentioned ones such as to get out of debt or increasing their income.

One of the keys to effective goal setting is to understand your why. Having a compelling reason for doing something will help you find the way to achieve it.

Some things are more under your control than others. For example, getting out of debt is achievable by identifying spare money and targeting debts in a systematic way. Stop spending money on credit cards and look to switch to lower rates of interest will also accelerate your success.

Doubling your income is more of a challenge especially if you earn a salary. Mostly because there are more factors beyond your control. However, if you ask powerful questions you can expect to receive powerful answers.

For instance, asking ‘why am I always broke’ is not a powerful question. But asking ‘what would need to happen for me to double my income’ could be.

That might lead to some ideas such as asking your boss what you would need to do to qualify for a promotion or raise. Taking additional training or qualifications. Working extra hours or starting a side project. Perhaps even switching careers all together.

A definition of financial wellbeing includes feeling comfortable and empowered around money both now and for the future. Therefore, a better understanding of where you are now and where you want to be is a great first step in improving yours.

If you would like my free guide – The 7 Secrets to Financial Wellbeing – please click here

Save Time When Making Big Purchasing Decisions

Making decisions can take up a lot of your time. You often have multiple factors to think about, and you want time to think over your options before you make a final choice. When you need or want to buy something, especially if it’s going to be expensive, you can spend days, weeks, or even months mulling over your options. While it’s good to avoid rushing into big purchases, it can also mean that certain parts of your life are on hold until you’ve made a decision and bought what you need. If you can reduce your decision-making time, you can be more productive and move on to other things more quickly.

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Image by gonghuimin468 from Pixabay

Define Your Needs/Wants

To help yourself make purchasing decisions more quickly, start by defining what exactly it is you’re looking for. What do you need from the purchase and what do you want? This will help to prevent you from aimlessly browsing different products or services with no real idea of what you’re looking for. You might need to do a bit of research first to determine what you should be looking for and what options are out there. Try finding some basic guides that give you the rundown on your choices.

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Image by mohamed Hassan from Pixabay

Be Strict with Your Budget

Defining your budget should also help you to make a quicker and better decision. When you know how much you want to spend, you can immediately rule out anything that’s too expensive. You might also want to remove any options that you think might be too cheap. You might allow yourself to go slightly over budget if you find something that fits all of your criteria. However, it’s a good idea to define in advance just how much more you would spend and under what conditions you’d need to go over budget.

Use the Right Resources
Having some good resources for research can really help you to make a faster decision. When you have reliable resources that you know will give you good advice, you can use them whenever you need them instead of spending hours trying to find useful information. If you’re going to buy a car, Edmunds can help you out. If you’re looking for the best tech products, TechCrunch can give you the advice that you need. If you’re trying to buy a reliable appliance for your home, Good Housekeeping could help you find what you’re looking for.

Save Time When Making Big Purchasing Decisions - checklist image
Image by Memed_Nurrohmad from Pixabay

Create a Checklist

A checklist of questions to ask yourself before a purchase will enable you to check that you’re making the right decision. It can also encourage you to think faster, rather than spending a long time mulling over whether you want to do something. You might ask yourself whether it’s something you need or just something you want. You can consider whether you have to buy it new or if buying used wouldn’t make much difference. You could also ask whether you’ve found the best deal or whether there are better prices available.

When you’re making big purchase decisions, don’t let the process drag out. You can be faster and more productive by improving your process.