If the phrase financial planning makes your eyes glaze over and mind wander, you are not alone. Talking, or even just thinking about money can be exhausting, and you may feel that it’s impossible to know where to start when it comes to considering your longer-term goals. There is a difference between knowing it is important to plan for the future, and actually doing it.
However, like so many things, once that initial step is taken, it often becomes much easier and you will find yourself wondering why you didn’t do it sooner. Having an accurate view of your finances and attitude towards money can really help you plan for the future you want – whether it be working towards that dream holiday, saving for a new house or car, or even making sure you have enough to comfortably live on come retirement.
Starting down the road of financial planning does not have to be complicated. One of the biggest challenges many people face is being honest with themselves. Our relationship with money can be complicated, but taking a step back to evaluate your finances as a whole can enable you to hit that refresh button. You may find areas where you are spending money unnecessarily, or simple steps you could take to free up some money and help you to save more.
A good place to start is understanding your attitude towards money, and quizzes like the one below can help. It is by no means comprehensive (there is not enough space to do that here) but designed to get you thinking about your relationship with your money.
How much money would you say you have left at the end of the month?
A. A small amount
B. A large amount
C. None
D. A medium amount
What do you do with any spare money you have?
A. Save it for a rainy day
B. Invest it
C. I rarely have any spare money so it’s not a question I can answer
D. Treat myself
Do you know where most of your money goes each month?
A. Yes, and I track my finances carefully
B. I know where most of my money goes
C. I know roughly where my money goes
D. I find it really difficult to keep track of my outgoings
If your income suddenly stopped, how long could you last before running out of money?
A. Between three and six months
B. For quite some time, over six months
C. No time at all, I’d struggle immediately
D. Very little time, a few weeks at most
If you were given £1,000 now, what would you do with it?
A. Put it into my savings
B. Invest it, most likely
C. Pay some off some of my debts
D. Hit the shops and treat myself to item(s) on my wish list
How much have you thought about your finances in 10 years’ time?
A. I feel like I’ve got my finances sorted in the short to medium term, but longer term is more difficult to define
B. I’ve already got money invested for my long-term future
C. I don’t have enough money to think about the next few months, let alone 10 years’ time!
D. I haven’t thought about it, hopefully I’ll have won the lottery within the next 10 years!
You’ve had an unplanned expense come up for £2,000 that needs to be paid within a week, what do you do?
A. Not a problem, I’ve got enough saved to be able to transfer that easily
B. I’ve got enough to cover this, but would have to move some money around
C. I’d struggle to pay this, and getting additional money from a bank or credit card would be difficult
D. I’d probably turn to friends/family to help, or failing that, isn’t that what credit cards are for?
What did you score?
Mostly As – The budgeter – You stick to a budget and know where every penny goes. You have money in savings so is it time to consider investing some for the longer term?
Mostly Bs – The savvy investor – You have money invested and are thinking about the long term, which is great, but you should make sure you have enough in cash savings too. Savings are important in case of an unexpected expenditure and also for short term financial goals. This is because stock markets can fall as well as rise, so if all your money is invested, you may need to free up some cash by selling some investments at a time when they may have dropped in value.
Mostly Cs – The Here and now-er’ – You have little money left at the end of the month. Sometimes it can feel pointless to save or invest, but even putting away a small amount is worth doing – you will be surprised how it can add up over time. If you are struggling with money, remember there is always help available.
Mostly Ds – The impulse spender – Sometimes it can feel like money hits your account and is already on its way out to pay for something you have had your eye on. There is nothing wrong with treating yourself if you can afford to, but having a rainy day fund that can cover three to six months’ worth of outgoings will give you cover if you unexpectedly need it. Longer-term, it might be worth considering if ‘treat’ money could be saved or invested, leading to an even bigger reward down the line.
What next?
There is no one-size-fits-all when it comes to pulling together your financial plan, but a good starting point is to look for ways you can make cutbacks or savings. You can then think about how to get the money working harder for you. Start by paying off any debts you have, building up your savings and then consider investing for the longer term.
If money issues are keeping you up at night, there is a huge range of free resources available that could help. We have a Money Management hub where you can find lots of helpful information. You can also look at the Money Advice Service. If you are struggling to repay debts and feel unable to do it on your own, Stepchange or Citizen’s Advice can also help.
