At the beginning of every year, we see people setting new years resolutions. Improving personal finances remains one of the top resolutions, especially as people prepare to cope with the current economic uncertainty.
At the beginning of every year, we see people setting new years resolutions. Improving personal finances remains one of the top resolutions, especially as people prepare to cope with the current economic uncertainty.
While many of us set these goals with the best intentions, it’s not uncommon for people to struggle or fail to achieve their targets. Unfortunately, this often results in frustration, making people less willing to try and tackle personal finance the following year.
However, improving your economic situation is not something to avoid. Yes, it can be difficult, but your finances directly impact your happiness and sense of security. While learning about the topic can be challenging, it can enhance your quality of life.
Getting started is usually the hardest part of any new resolution. We rarely know where or how to start, and there’s often an overwhelming amount of information to digest. You should know you’re not alone if you feel intimidated by this subject.
To battle these universal concerns, financial expert Jurg Widmer has compiled a quick guide for managing your personal finances in 2023.
What is personal finance management?
Personal finance simply refers to your individual or family money. It is often divided into 5 levels:
- Income
- Saving
- Spending
- Investing
- Protection
While this sounds relatively straightforward, the reality of the task is often more complicated. Managing your personal finances may not be the simplest thing in the world, but it’s one of the most rewarding.
As the experts know, you significantly increase your chances of reaching your goal if you plan the steps you’ll need to take to get there.
Our top financial goals for 2023
As we said, it helps to have goals in mind when trying to manage your finances. Most experts predict that economic uncertainty will continue throughout 2023, so setting suitable personal finance targets is more critical than ever.
So, how can you be good with money in 2023?
Learn about personal finance
Lack of knowledge is a major barrier to financial freedom. Unfortunately, most people don’t know much about personal finance, making related decisions and financial planning even more difficult.
Working with a financial advisor can be one of the most effective ways to improve your personal finances. You’ll get assistance from an industry expert who can offer detailed solutions tailored to your situation. But, of course, not everyone has the funds to hire a financial advisor.
Fortunately, there are now more opportunities to enhance your skills and knowledge. The many online and in-person courses available can teach you how to get started. You can learn anything from how to create a budget, save more money, manage debt, or begin investing. The Money Charity has some great resources for essential money management.
Save more
One of the core pillars of personal finance is savings. Most people want to save more and spend less. However, it can be difficult to build your savings, especially when unexpected issues occur.
Emergency fund
Before saving for life’s extras, it’s essential to be secure. If you don’t already have one, you should build an emergency fund, typically one that could cover between 3 and 6 months of living expenses. If there’s one thing you can rely on, it’s that life is unpredictable. But we can prepare for unexpected mishaps by setting up an emergency fund as soon as possible.
How much to save in 2023?
There’s no exact amount that everyone should aim to save in 2023. Your goals will depend on your income and outgoings.
However, it generally helps to set specific goals. These can be short-term, for instance, saving for a holiday, or longer-term goals like saving for a home or early retirement.
Sometimes, it makes sense to adjust your savings, particularly with short-term goals. For instance, you may want to save £1,500 in 3 months for an upcoming holiday. If you earn £1,800 per month and your must-pay costs (rent, bills, etc.) are £1,200, saving £500 a month for 3 months is possible if you reduce spending on your wants. While this works short-term, you may not want or be able to continue this over a longer period.
Long-term money management is much easier if you have some freedom to buy the things you want. On the other hand, an overzealous approach to saving creates an unhealthy imbalance in which you have little to no money to spend on yourself. This can result in revenge spending, where you splurge to make up for consistently denying your desires.
Many find it easier to put a set portion of their earnings into savings. We suggest automating this process, so you don’t have to worry about remembering and aren’t tempted to spend the money elsewhere.
Create a budget
It’s not uncommon for individuals to check their bank and feel surprised by how much they’ve spent. Many of us lose track of or underestimate our spending habits. Taking the time to sit down and create a budget can help you realise where you’re spending money and may enable you to trim your outgoings.
What is the 50/20/30 rule?
One budgeting method that works for many people is the 50/20/30 rule, in which 50% of your income goes towards your needs, 30% toward your wants, and 20% into savings.
Budgets should be based on your income and needs, but something that accounts for spending on your wants is the best solution for long-term success.
Prioritise your debt payments
Last year, the number of households struggling with large debts grew by a third.
Debts can be tricky to tackle, especially if you have more than one. The obvious goal is to pay off your debts as quickly as possible, but knowing that isn’t much practical help.
Prioritising your debts can make paying them off more manageable. The first debts to pay are the ones related to your needs. So if you have mortgage or car payments, these come first. After this, you’ll want to target debts with higher interest rates. These will more quickly increase over time, so they should be paid off as soon as possible.
Plan for the future
Of course, sometimes we have to prioritise our current situation. Planning for the future when you are worried about the present is undoubtedly more challenging, but it’s important to do what you can now.
If you’ve spent any time browsing personal finance sites, you’ll likely have seen experts constantly talking about investing and retirement plans. The vital thing to remember here is that you don’t have to do everything simultaneously. For example, you may want to brush up on your knowledge of investments or retirement plans if your funds are already stretched thin. Or you could start with a smaller sum. Remember, any progress is better than none, even if you aren’t hitting the same targets as your friends or as experts recommend.
Accountability
As with any goal, building accountability into your plan is helpful. This could be by doing something as simple as chatting with friends or family about your personal finance goals, what you plan to do, and when you want to achieve them.