Have you ever decided that you want to take more control of your finances, but you don’t really know where to start? Or perhaps you have started a business in order to bring more money into the family, and yet, every month still seems to be tight financially.
Below are the steps you can take to improve your wealth – whether you have just started a business from your kitchen table or are already running a successful mumpreneur company. Follow each one on a regular basis and there will definitely be an improvement in your financial position.
1. Calculate your starting point
Until you’ve calculated a starting point you have no way of knowing whether you’ve improved your wealth or by how much. So work out the value of everything you own, (your house, car, investments, pensions etc.) and deduct the value of everything you owe (your mortgage, credit card balances, HP etc.). The difference is your net worth.
This will be your staring point and will be your base calculation. Now set a target for what you want this to increase to over the next six months or 12 months. You can either set a specific monetary figure, or you can aim to increase your current net worth by a certain percentage.
The goal you set will depend on your starting point and your own specific circumstances.
2. Control your debt
If you have large balances on your credit card and only pay off the minimum each month you are paying a huge amount of interest and not making much of a dent in the actual debt. It could mean that it will cost 3-4 times the initial amount you put on your card. Based on that information, all of a sudden that purchase doesn’t seem so appealing, after all.
So before you put a purchase on your credit card consider how much it will cost you to pay it back in total, rather than how much you pay back each month. And then ask yourself “Do I still want to buy it on credit?”
3. Save before you spend
If you plan to save what balance you have left in your bank account at the end of the month, invariably there won’t be anything left. A better option is to have a standing order each month that goes out of your account as soon as your income comes in. That way your savings will be taken care of. In many cases you may not even realise you have less spending money available.
Having a regular amount going into a savings plan, even if it’s only a modest sum, will set up a savings habit. Over time it will be easier to increase the amount of the standing order, as you see your savings grow, and realise you can make these savings without adversely impacting on your spending.
4. Save regularly even if it’s only a small amount
It’s easy to think that it’s not worth saving a small amount, however, over the long term you’d be surprised how much small savings, on a regular basis, can really grow.
For example, if you were to invest your child benefit from the day your child is born until they are aged 18 and get a 10% return each year, at the age of 18 that would be worth over £53,000. That’s enough to fund university, provide a deposit on a property, fund a gap year etc.
Even more interesting, if instead of giving this sum to your son or daughter at age 18 you left it invested continuing to earn 10% return each year it would be worth over £4.6 million when they are aged 65. A figure we would all be delighted with.
The above example is based on investing child benefit of £20.30 per week. This is the equivalent of £2.90 a day. So even if you no longer receive child benefit you can still take advantage of this by investing an equivalent sum each day.
5. Monitor your spending
Many women think they don’t have enough money to save. If that’s the case, keep a detailed record of all that you spend over a three month period, including everything you spend in cash. Write it down as you spend it. Don’t wait until the evening – chances are you will have forgotten exactly what you spent.
When you have completed the three month exercise, review each item on the list and consider “how can I reduce it?” I’m not suggesting you become a hermit – although that might save you a lot of money, you’d be very unhappy, so what’s the point of that?
The exercise is designed to make you more aware of what you’re spending your money on, and to see whether there are options to reduce your costs.
6 Review everything regularly
Doing the above exercises is not a one off. Over time bad habits can creep back in. So repeat all this on a regular basis to ensure your money is working hard for you.
Set regular targets for what you want your net worth to increase to and then monitor your progress.
The important thing to remember is that this is an ongoing process and not something you can do once and forget about.
7. Enjoy your money
Don’t be fearful of dealing with your finances. It’s simply a list of actions to follow in order, to get an end result. You do these things every day in one way or another, so this is no different.
Everyone will approach it differently. What’s important is that you find a way which works for you. Follow the steps to improve your financial position in the knowledge that small steps on a regular basis can lead to a significant increase in your wealth
About the Author:
Mary Waring is an independent financial adviser and the founder of Wealth For Women, specialising in financial advice to women going through divorce. She is both a Chartered Financial Planner and a Chartered Accountant, being one of only a handful of advisers in the whole for the UK with this high level of qualification. Mary is passionate about changing the way women think about finance. Too many women stick their head in the sand and ignore it, or rely on a man to sort it for them. Mary is also author of ‘The Wealthy Woman – a man is not a financial plan’. See: www.wealth-for-women.co.uk/