Tag: budgeting

As we head into a new year, now can be a good time to start thinking about the things we want to achieve. Many of us set New Year’s resolutions (which we often end up failing to stick to), but what are our financial goals? And if you do have a financial goal as one of your New Year’s resolutions, have you figured out how you’re actually going to achieve this?

What are Financial Goals and Why should we use Them?

Financial goals are the priorities and targets you set for how you want to spend and save your money. These come in all shapes and sizes, and will completely depend on your own needs, wants and priorities. There are a huge number of financial goals but some examples include:

  • Becoming debt free
  • Going on holiday
  • Being financially prepared for retirement
  • Buying a house
  • Buying a new pair of shoes

When it all comes down to it, many of the things we want to do or achieve will cost money, and this is where financial goal setting can be an incredibly useful tool for any stage of your life.

Establishing financial goals can help us figure out what things we want to prioritise. Factoring financial goals into our budget can help us to manage our spending and figure out where we want to reduce any expenditures.

Financial Goal Setting

When setting financial goals, it can be handy to use the SMART goal setting technique.

It’s important for us to be very SPECIFIC when setting financial goals. We should be detailed about what it is exactly that we want to achieve. For example, if you would like to buy a car, what kind of make and model is this car? How much is the road tax?

We should also make sure that our financial goals are MEASURABLE so that we can see we are working towards achieving this goal. You may wish to set up a savings account to help you see how near or far you are from achieving your goal.

Financial goals should always be ACHIEVABLE for where you are in life right now. There’s no point in setting yourself up for failure by setting up a financial goal which you will never realistically achieve, such as buying a new house in a month when you have no existing savings.

Therefore, it’s important to be REALISTIC when financial goal setting. You should look at how much income you have coming in, any expenses you have, and any priorities you need to put first. These things will help you to figure out how much you can realistically set aside to achieve this goal. This is particularly important if you would have to take on extra hours or an additional job in order to achieve your goal, as you don’t want to run yourself ragged and risk experiencing burn-out!

Finally, our financial goal should always be TIMELY. By setting a deadline, it means you have something to work towards. By being specific with our goal, we should know exactly how much money we should put aside, and if we are also then time-bound, we can set a deadline for achieving it, which allows us to work out how much money we need to put aside every week or month. Being timely also helps us to prevent procrastination, as without a plan, it can be easy to keep pushing back when we want to achieve our goals.

 

We also have a free online mini-course dedicated to financial goal setting, where we explain in more detail how to go about setting your very own financial goals.

UK retail sales are forecast to reach £84.9bn over the six week Christmas period this year, but why do we spend so much at Christmas?

Christmas Overspending

Vouchercodes.co.uk found that 20.5% will be using their savings to help pay for Christmas this year, compared to 19.6% of people last year. However, it’s not just savings people are using… many people this year will be looking to fund Christmas with credit options:

  • 18.1% of consumers are using credit cards this Christmas
  • 7.7% will turn to Buy-Now-Pay-Later schemes
  • 4% will use a general loan
  • 2.9% will use a payday loan
  • 3.2% will turn to family or friends for a loan

Dangers of Funding Christmas by Credit

As soon as you start using credit to fund your Christmas gift giving, you are entering dangerous waters, as you are spending money you don’t have.

Buy-Now-Pay-Later (BNPL) financing for example encourages overspending, as you are buying things with money you don’t have at this moment in time. When we pay for things upfront, we can see the money exit our bank account and can view our new bank balance. However, when we use BNPL, the money doesn’t exit our bank account straight away, which makes it really easy for our spending to run away from us as we can’t keep our eye on it the same way.

As for loans, particularly payday loans, we will often have to pay quite a lot in the way of interest. This means that over time, you may end up paying back far more than you originally borrowed, which can put a big strain on your finances. You can use Stepchange’s free payday loan calculator to see how much money you would have to pay back with your loan.

You should also be wary of borrowing money off family or friends to help pay for Christmas, as if you fail to pay it back on time, it could certainly create tensions and lead to strained relationships.

Why do we Spend so Much at Christmas?

The Bank of England found that, on average, we spend almost £740 in December, which is 29% more than we would spend in a typical month.  Why is this?

For many of us, Christmas feels like a special time of year, regardless of our religious beliefs. Some of our fondest memories are often rooted around Christmas and spending time with our family or other loved ones. Perhaps then why so many of us are so willing to squeeze our finances to much at Christmas is because we want to make it special for those around us too.

Many parents in particular feel a sense of pressure around Christmas to give their children ‘the best,’ whether that be the latest gadget, the newest toy, or the biggest pile of presents. However, what matters most is being there for your children as that is what they will remember most as they get older. At the end of the day, it’s the thought that counts, not the price tag.

There are additional factors at play here too, the first of which is social pressures. Often, we present ourselves to people in the way we wish them to see us. Therefore, it can be easy to fall into the trap of spending beyond our means in order to present a certain image of ourselves: an image of stability and success. This pressure has only been worsened by social media, as seeing others present their lives in a particular way online can often make us wish for the same. Click here to read more about how social media can pressure us to overspend.

This social pressure is often linked with a sense of pride, where we feel that we must ‘keep up appearances’ to outsiders or to family or friends. This can lead to use buying gifts that are too expensive and that we cannot reasonably afford.

Additionally, there are advertisements EVERYWHERE, constantly encouraging us to spend more and more money. Pre-holiday deals like Black Friday often seem too good to miss, leading to us buying things we wouldn’t have otherwise bought, racking up our spends.

Lastly, many of us fail to effectively budget for Christmas. Sure, you might make a budget, but do you stick to it? Our budget calculator is a handy tool to help get you started on planning your spending coming up to Christmas. Click here to use it for free!

Going travelling or on an extended holiday? Then you might find this guide helpful…

Avoid Banking Fees

You may want to consider opening a bank account with low or no international fees, such as Starling. This means you can take money out abroad without it breaking your bank balance!

This is particularly important when travelling for extended periods, as it means you don’t have to take out all the money you’ll need beforehand and so don’t risk travelling with lots of cash!

You should also let your bank know in advance that you will be travelling to avoid having your card blocked due to suspicious activity.

Set a Budget

Yes, I know, we love to bring up budgeting… but it is very important! When travelling, you may wish to consider setting up a weekly budget so that you don’t run out of money towards the end.

Make sure you have more than enough money to travel and leave a safety net amount of money in case of any unexpected expenses.

Leave Money for Subscriptions

If you have any subscriptions that will continue to come out of your account, such as your mobile phone bill, make sure you leave enough money for it at all times. You don’t want to return home to a diminished credit score after all!

Car Insurance

You should also ensure there’s enough money in your account to cover your car insurance if this will automatically renew whilst you’re away.

It’s important to remember here that you must have car insurance if you own a vehicle, regardless of whether it’s parked on the road or not.

If you’re going away for a long time, you may wish to reduce your level of cover, seeing as though you won’t be driving the car. If you have fully comprehensive insurance that is due to automatically renew when you’re away, you may want to consider moving to a policy which only covers Third Party or Third Party Fire and Theft.

Travel Insurance

Whilst on the topic of insurance, we must discuss travel insurance. Travel insurance is particularly important when going away for long periods of time. Here are some things travel insurance may cover:

  • Medical costs…we’re lucky to have the NHS in this country; in many other countries, medical treatment can be expensive. Travel insurance can cover the cost of this treatment so that you aren’t left out of pocket
  • Repatriation… where they pay to fly you back home to the UK if you are seriously ill or injured
  • Cancelation cover… if you need to cancel your trip for a reason covered by your policy, you can claim your money back
  • Baggage cover… to replace any personal belongings if they are lost or damaged whilst you’re away
  • Missed transport or delayed departure for reasons beyond your control… e.g, if your flight gets cancelled

You should look into which of these your policy covers and compare providers to work out what’s best for you.

Vaccinations

Before travelling, you should consider any vaccinations you might need. To do this, you may want to check out:

You may have to pay for some of your vaccinations so it’s important that you factor in their cost to your budget. However, some you can get for free on the NHS, so take full advantage of this to save money.

Pre-Paid SIM Cards

Pre-paid sim cards are worth considering so that you can data roam and make phone calls whilst away without facing astronomical fees. Whilst this may not seem important, being able to access data means you can go on Google Maps if you get lost or find a number for a taxi firm. It can help keep you safe.

Whilst having a baby can be a very exciting time, it also brings with it many responsibilities, including lots of financial decisions.

First Step, Budget

At Red Star Education, we are big on budgeting. Here are some of our blogs that you may find helpful for your budgeting journey:

When preparing for a baby, a budget is a good place to start, as it helps you figure out your current financial position. How much do you have coming in and going out of your account each week? How much money do you have spare to dedicate to a baby?

Next Step, Baby Budget

Once you’ve figured out your current finances, it’s time to make a budget for all costs that are baby-related. Here, you should think about all of the one-off costs as well as the continuing costs of raising a child. This might include things like:

  • A crib
  • Toys
  • A pram
  • Nappies
  • Baby wipes
  • Bedding
  • A lot of other things!

According to The Money Charity, it costs an average of £24.44 a day for a couple to raise a child from birth up to age 18. For a lone parent family, this cost averages at £29.50 a day. When working out your current budget on the last step, did you have enough spare income to afford this? If not, you need to figure out where you can reduce your expenses.

It’s also a good idea to factor in savings to an emergency fund for your new budget, as you will have a dependent relying on you to maintain financial stability.

Maternity, Paternity and Shared Parental Leave

Maternity Leave

When figuring out your new budget to include baby costs, you will need to know how much money you will be getting during maternity, paternity, or shared parental leave.

For the 2022-23 tax year, you get 90% of your average weekly earnings before tax for the first 6 weeks of maternity leave. For the next 33 weeks, you get the lower figure of either £156.66 a week or 90% of your average weekly earnings. The next 13 weeks will be unpaid. The earliest you can start claiming paid maternity leave is the 11th week before your due date.

These amounts are for the Statutory Maternity pay, which is the minimum you are legally entitled to from your employer. However, you should check your employment contract as some employers offer more generous maternity benefits than this.

Paternity Leave

As an employee, you are entitled to one or two weeks paid paternity leave. This leave cannot start before the baby’s birth and will end within 56 days of the birth.

You will get the lowest figure of either £156.66 a week or 90% of your average weekly earnings.

Shared Parental Leave

Alternatively, you may opt for shared parental leave, where you can share up to 50 weeks’ parental leave and 37 weeks’ pay with your partner.

Once again, you are entitled to receive £156.66 a week or 90% of your average weekly earnings, depending on which is lower.

The Legal Stuff

You may wish to consider taking out life insurance so that your baby will be financially protected if you die. You can read more about life insurance here.

It’s also worth considering making a will. This will enable you to:

  • Name your preferred guardian of your children if you die before they turn 18
  • Say how you want your estate divided when you die
  • Name an executor to administer this
  • Create a trust fund for your children if you wish to (link child trust funds blog)

Being house poor is when you spend too much of your monthly income on housing costs, leaving little money left over for anything else. These housing costs include mortgage payments, home maintenance costs, utility bills, home insurance, and anything else involved in having a home.

We Have Other Things to Pay For!

Housing costs, particularly mortgage payments, are usually our largest monthly expense. However, there are other things we need to be putting money towards. This includes things like

  • An emergency fund of savings
  • Money towards your retirement
  • Any holidays you want to go on
  • Days out
  • Car costs

Basically, we have a lot of costs to think about that have nothing to do with housing!

Why Do People Become House Poor?

Two main reasons people find themselves house poor are:

  1. They don’t understand the extent of all of the costs involved in owning a home
  2. They have an unexpected change in circumstances which seriously impacts and changes their financial situation

Therefore, to avoid being house poor it’s a good idea to seek the help of a financial adviser or mortgage broker when looking to buy a home. After all, there are a lot of costs involved in buying a home aside from mortgage payments. To find out more about the different fees involved when taking out a mortgage, click here. It’s also a good idea to create an emergency fund in case you come across any unexpected costs when buying a home.

50-30-20 Budget Rule

The 50-30-20 budget rule can help you manage your monthly spending through giving you a basic plan of how to spend your money. With this rule, you aim to spend 50% of your income after tax on essential needs and 30% on wants. You then save the remaining 20%.

Remember that this is just a rough guide to managing your money, and that you may find that this level of saving is unrealistic for your own financial situation, and so you can adjust the savings goal to 5% or 10%.

The 50-30-20 rule is just one way in which you can organise your spending, but budgeting is never a one-size-fits-all thing; you should always adopt a style of money management that best suits you.