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7 baby steps to financial planning

By estherbangura | Budgeting

Jan 04

Step 1 Set your goals for 2019.

Goal setting will help direct you towards what you want to achieve in 2019. Don’t over complicate it. The key is simplicity and giving yourself realistic deadlines to meet your goals.

The goals you set for yourself are dependant on where you are on your financial journey. This includes your income, how much debt and savings you have and the plans you have for the future.

Below are two examples to help you understand how to set financial goals.

Meet Sarah


Sarah is a single 25 years old who works full time and has a mortgage. She has maxed out her overdraft of £1000 and has accumulated credit card debt of £1500. Sarah has £300 in savings and no investments including pension.

In short, Sarah may want to focus on paying off her overdraft and credit card debts. She may also want to increase her savings, and start to contribute towards her pension even if it’s the minimum. She should start to work on expanding her knowledge about finances to help her not get back into debt.

Sarah’s 2019 goals might look something like this:

  1. Create a budget and eliminate the need to use overdraft and credit cards for essential expenses.

  2. Pay off overdraft and credit cards.

  3. Save £1000 towards my Emergency Fund.

  4. Start to contribute the minimum towards pension.

  5. Read one financial book every quarter.

Meet Jack

Jack is a single parent of a five-year-old. He earns a decent wage, pays all his bills on time, and tends to have extra cash left each month. However he ends up spending it all and doesn’t know where it’s going. He spends a lot on eating out and buying toys. He has £3000 in credit card debt and £1000 in savings. Additionally Jack is contributing minimum payment towards his pension and has no life insurance.

His priority is to find out where his money is going, clear debts,and increase his savings. He should consider having a saving account for his son for education, max out his pension contribution and ensure his family is protected against the unforeseen.

Jack’s 2019 goals might look something like this:

  1. Create a budget and track spending by keeping a journal.

  2. Create a savings pot for eating out and buying toys. Only spend a certain percentage of the pot per month.

  3. Create a debt management plan to pay off credit cards within 12 months. Cut down on eating out and buying toys (cook homemade meals/look for free/discounted activities) . Use the extra cash from this to pay off debts.

  4. Keep the £1000 as an emergency fund and work towards savings of £2000 by the end of the year.

  5. Increase Pension contribution once credit card debts are paid.

  6. Find the best insurance policy to ensure his son is protected if anything was to happen to him.

As you can see one size does not fit all when it comes to setting financial goals. Be true to your circumstances and don’t try to keep up with the Jones, as the Jones can barely keep up with themselves! Don’t run before you can crawl, your only competition is yourself. Decide on goals that are  important to you and begin to tackle them one by one.

Step 2 Organise your finances

Do you know your total monthly income? Do you know your total monthly outgoings? Do you know how much debt you have? Do you know what your interest rates are? Do you understand the terms and conditions of your contracts and insurance? Do you know how much savings you have? Do you know what your pension is worth? Do you know where to find relevant documents when you need them? Husbands/wives should something happen to your partner, would you be able to manage your household finances?

If you answered No to any of the above, it’s time to get your financial house in order. Use this first week of January to organise your finances for 2019. You can find out more about how to get organised here.

Step 3 Create a budget

Many people see budgeting as limiting; this is not the case. Budgeting is one of the most empowering financial activities you can give yourself to create wealth. By having a weekly or monthly budget, you get to control what happens to your money. Budgeting will help you find extra cash to put towards savings and paying off debts. It will also help you to plan for future goals. If you want to build wealth, be debt free and own assets, then budgeting needs to become your basic financial principle.

When it comes to budgeting, it’s a matter of what works well for you. You may have to try out various budgeting methods before nailing the right fit. Learn more about how to master your budget here.

Step 4 Start a savings challenge- begin with the ‘beginner saver challenge.’

Living payday to payday may seem like the norm, but there is so much more possible for you. Imagine having 1-3 months savings worth of monthly expenses in your bank account, which can allow you to deal with unexpected events. Imagine being able to take extra time off work if you fall ill, without having to worry about bills. Imagine replacing items with cash as you have the money to pay for it immediately and not get into debt over £200 for new tyres. Savings give you a cushion to fall back on should anything go wrong- which it inevitably will, it’s just a matter of when. Savings allow you to have the things in life that make you happy but not at the expense of getting into debt.

Make 2019 a year where you enjoy saving just as much as you enjoy shopping. To start you off- Sign up to Boss Of My Money Newbie Saver. Where you will save £780 in 12 months. Each month you will save according to the month you are in. January £10, February £20 and March £30 and so on. If you are already saving and would like to save towards a different savings pot, you can use this method to do so without breaking the bank. Download the Savings Sheet here

Step 5 Create a debt- payment plan

Good-debt, bad debt! Debt is debt, and we should never be ok with being in debt. It should not be the first thing we run to when we are short of cash. Make up your mind in 2019 to have a debt management plan and decide to tackle each debt using the debt avalanche or the snowball method. You can find out more about how they differ here. If you are living payday to payday and can’t afford to pay more than the minimum on your debts, consider cutting down on non-priority expenses or increasing your income. However, you decide to do it make it a priority to become debt free in the next 3-6 months or 1- 3 years.

Step 6 Open an ISA or start contributing towards one

A great place to have you Emergency fund is in an CASH ISA. An ISA which is not linked to shares and bonds will allow you to access your money when you need to and keeps your money risk free. An ISA is also tax-free if you save within the annual threshold. You may not get much interest for your ISA, which is ok as you are using it as an emergency fund and not an investment. Find out from your bank what is available and decide on an amount to contribute on a monthly basis to help you grow your emergency fund.

Step 7 Start thinking about investments

Investing might seem far off for some people. The stock market can be confusing and complicated to get your head around. However, complex it may be- it should not prevent you from learning about investments. I would not suggest to anyone to invest in something they do not understand. Nevertheless, the truth is, investing is what will give you real wealth. Investing allows your money to make money and that money to make more money. You can invest in property, assets, gold, business or the stock market. If you are new to investment, begin by learning about how the investment you are interested in works. Speak to people that have tried them and understand the risks involved before putting money towards it. Never invest what you can’t afford to lose, but always be aware that sometimes you may lose. Diversify your investments. Spread them out so that if one area is doing well and another isn't, you are still making money.

What makes a good financial planner

Financial planning is not as hard as some may think. All you have to do is begin! It is advisable to review and update your financial plan every 2-3 years or as and when your circumstances change. For example, getting married, having a baby, buying a house. Or changing careers, a change in employment status, change in health and so on. If you are a couple or have children, it is crucial that everyone in the family is involved in the financial planning. By having them involved, you can ensure they commit to achieving the goals agreed.

Music. Tea. Goals.  

So call a family meeting, put the kettle on, switch on some music and start your 2019 Financial Game Plan.

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(2) comments

stanharris April 15, 2019

Thank sfor sharing such a valuable informative post. It is really informative and helpful article. The information that you have shared on financial planning is really wonderful.Getting debt advice in Scotland is probably the first step you need to start with, if you want to pay off your debts & lead a manageable financial life

Reply
    estherbangura November 2, 2019

    Stanharris, thanks for reading this post. You are right, the first step is to get help as soon as possible.

    Reply
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