If sorting out your finances is one of your resolutions this New Year, tackling any debts you might have run up over Christmas is a great place to start.
Here, we explain how to take control of your money and improve your financial situation in 2022.
1) Reduce your debts
It can be easy for debts to spiral out of control, especially after all those Christmas expenses. To prevent this from happening, write a list of all your debts, for example, any credit cards and personal loans you have, along with how much interest you’re paying.
You should then prioritise these, aiming to pay off those charging the highest rates of interest first. If you’re paying hefty interest charges on credit cards, you might want to consider moving your balance across to a balance transfer card with a lengthy 0% introductory rate. This will enable you to pay off what you owe more quickly as you won’t be hit by steep interest charges. Current competitive 0% credit cards include Virgin Money’s balance transfer card which offers a whopping 35-month 0% introductory period, with a 2.94% balance transfer fee. If you use a balance transfer card, make sure you clear your balance within the introductory period, as interest charges will shoot up as soon as it finishes.
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2) Work out a budget
One of the best ways to take control of your finances is to work out and stick to a monthly budget.
Start by going through your bank statements, noting down your income and your outgoings, as this will enable you to see exactly how much you spend each month, and identify areas where you might be able to make cutbacks. Catriona McInally, investment expert at Pru UK, said “Look at your subscriptions. There is a chance you can be paying for multiple subscriptions you are not using regularly, whether that it is for online streaming platforms, gym memberships or fitness classes. These monthly costs can add up, so any that you’re no longer using, consider cancelling and saving the money instead.”
3) Set yourself savings goals
Think about your financial goals this year, whether it’s saving up for a holiday, or trying to get onto the property ladder and commit to saving a set amount each month to help you achieve them. Tina Hughes, director of savings at Yorkshire Building Society, said “You might be saving for a rainy day, or for a specific purchase, but highlighting your savings ambitions and making a plan to work towards them can help make them more achievable.”
4) Build a safety net
As well as saving towards specific goals, it’s worth trying to build up some emergency savings, that are readily accessible in case you’re suddenly hit with any unexpected expenses. Emma Watson, head of financial planning at Rathbone Investment Management said: “It's often recommended that individuals have between 3-6 months' worth of their regular expenses saved in a “rainy day” fund as a protection for unforeseen emergencies. While it’s not possible for everyone to save this much, trying to save a little here and there can build up to a bigger pot over time.”
5) Don’t overpay on your bills
Steep living costs are putting huge financial pressure on many people, so make sure you always seek out the best deals where possible on things like insurance and mobile phones. Sarah Coles, senior personal finance analyst, Hargreaves Lansdown, said: “Right now, soaring energy prices mean you can’t get a better deal than the price cap, but you should keep an eye on changes over the next few months, and in the interim you can still shop around for mobile deals, media and broadband.”