When I finished writing last week’s article on taking control of your long-term financial plan, I was inspired to take it a bit further this week and give you some actionable tips. You know that you need to plan long term and to get creative about retirement and legacy and wealthy life planning. But, what do we do when we are faced with financial uncertainty, as we all are now? I have come up with a list of five practical steps to take in your personal, property and business financial planning, and we’re going to walk through them today.
Number one: check your income and expenses. I will always say this because if you don’t know how much money you’ve got and you don’t know how much money you’re spending; how do you know whether you’ve got the money to invest, the money to save, whether you’re in a good position or in a bad position? On my website, www.vickiwusche.com, you can find an Excel spreadsheet template for tracking your income and expenses, but you can use whatever you prefer—even a pen and paper. Just track those numbers!
When you do this regularly for at least a three-month period, you can look at trends and you can truly know which expenses are flat (like housing) and which expenses have risen (like food and utilities) and how much income you have to support your needs. And when you get to that point where you become more consciously aware of what you’re spending, you can make more informed decisions.
The second thing that you can do once you’ve got your income and expenses sorted out, is to start to look at where there might be interest-bearing debt. What I mean by this is if you have a credit card that you are not clearing on a monthly basis, that is incurring interest. And that is probably a very high interest rate; that is 18 to 24% or more, depending on the credit card companies that you use. You have to clear your credit cards. You may also have a personal loan. That’s probably at a set interest rate that might be somewhere between 3 and 10%. That costs you money.
You need to pay attention to a mortgage if you have one. What is that interest rate? When did you last re-mortgage? What is the term of this current interest rate? What is the period that this interest rate is going to apply to your loan? Once you know what the period of this interest rate is, you can make a decision as to whether you are in the right place in your mortgage to consider re-mortgaging.
My next tip is one many people associate with personal finance advice: have emergency savings. This is a time to make sure that you’ve got 3 to 6 months of your basic income and expenses saved in an account that you don’t touch. What if something happens? What would happen if tomorrow you fell and broke your leg and couldn’t work? You would have three months’ money to cover you. When you have enough money to cover the essential costs—food, shelter, utilities—you have a sense of security and control because you can make the right decisions to last through the emergency.
So, the next thing you need to look at is big expenses that are coming down the line for you. So, imagine you are a homeowner–and perhaps you already are one. You might have refurbishments that you need to do to the house. Are they cosmetic? In that case, given how expensive things are at the moment, is it something that you could save for next year, or is it essential, and therefore you need to get on it now because prices are rising? Do you want to make your bathroom glamourous, or do you need to repair a leaky roof? You need to start making these judgements. But they’re not emotional; they’re led by your spreadsheet because you’re certainly not going to take on costs you can’t afford.
The last thing that I want to talk to you about is anticipating risk. There’s always risk. Every day we face the risk that we might have a car accident; then there are small risks that you could trip and sprain an ankle, or simply spill your coffee. We’re surrounded by risks and we can’t mitigate for all of them, but we can mitigate for a lot of them.
So, just to loop back up, if you’ve got your income and your expenses and you know where you are, you can spot where the weaknesses and the risks are in your personal finances. You can look at your house and your living situation, and you can identify where the risks are. Keeping these risks in mind means that should one of them arrive, you will have a plan in place and not be left clueless.
Take these five tips and determine which ones you need to start incorporating in your strategy. Look at your expenses. Look for interest-bearing debt, get in control of your finances. Build up that cushion of savings so that you feel comfortable. These five steps apply to you whether you have a million pounds, a quarter of a million pounds, or 1,000 pounds; it doesn’t matter where you are.
If you don’t know your finances, you’re vulnerable, and you need to make sure that you’re not vulnerable going into these next six months. Get strong now and you will be in a strong position going forward. When you’re in that strong position, you can help others. You can either help others by explaining what you’ve done, or you can help others because once you’re in a financial position and you’re strong, you can be more charitable. You can contribute more. I’m going to leave you with that.
Do listen to this week’s episode of my podcast A Wealthy Life with Vicki Wusche here and here. And as always, we would absolutely love to hear your thoughts!