You know your finances need sorting, but putting it off is appealing because dealing with them is the worst. Hell, just thinking about it is enough to make your blood run cold!
However, it’s like pulling off a plaster – slowly tugging away and fretting is making the situation worse. We both know once its sorted you’ll feel better – even if you just take one step today.
You need a budget, a savings plan, a debt repayment strategy, a better credit score, a plan for retirement… holiday savings… well yeah, there are a lot of big goals to deal with – so lets start small.
Open a separate bank account
Having all your money in once place can get confusing quickly. To simplify, open a second account for a dedicated purpose. After you’ve opened the account use it to split your income.
- Automatically deposit a portion of your income (anything that is coming in) into your existing bank account, and use that to cover basic expenses like rent and bills.
- Deposit the rest of what’s left into your new account to use for fun stuff, like eating out, shopping or going on holiday
I have three accounts I move money around. One is my main account, I also have a holiday account and an attic extension one.
Whether it’s for retirement, a holiday or a rainy day fund – you need to start saving. Even if you are skint, you need to get into the habit of putting away a few quid (as much as you can without depriving yourself) each month.
The best way to do this is to get an ISA which is a savings account which you don’t have to pay tax on. If you already have an ISA, you can then put your money into a bank account, as some in-credit rates are pretty good.
Once you’ve filled your current accounts, start to recycle your money into regular savings. A regular savings account can pay high interest but it’s only on a small amount of money.
HOWEVER – if you have a load of debt you’re paying interest on, it doesn’t make sense to save money while letting the debt get worse. Tackle that first.
Get a handle on your credit score
Now that you know you’re capable of healthy money habits, let’s take a look at the bigger picture: What is the state of your credit score?
To plan for the future, you’ll want to understand your existing debt and borrowing power.
If you’ve not done it, you can check your credit score for free (a month trial) on Experian and Equifax. These companies will show you exactly where your credit shines and where it could use some improvement.
If you discover that your credit score is less than ideal (mine was horrific once), then its time to create an action plan.
Why is it important?
Your credit rating is used to help lender decide whether to lend you money, how much to let you borrow and, in some cases, how much interest to charge you.
If you have high levels of debt, have missed or a are missing payments on anything from your mortgage, credit card, loans, gas/electric etc – it all stays on your file for six years and will hurt your credit rating.
My credit rating is pretty shoddy, what should I do?
Take is slow and realise fixing it is going to take a long time. First off:
- Stop applying for credit – no more credit cards and loans until you’ve improved your credit score.
- Get on the electoral register – this is the easiest one to sort out. If your name isn’t on there you’ll find it much harder to get credit. You can register to vote online.
- Cancel unused credit cards – believe it or not, credit cards doing nothing in your name doesn’t look good to lenders.
The BEST thing you can do after that to build up your rating is to pay everything on time.
Start a passive income stream
Passive income can be thought of as money you earn passively, meaning that it only requires a little bit of effort on your part to earn that revenue.
Install these apps on your smartphone and earn money every month you keep them installed.
- Swagbucks – This app will reward you for participating in focus groups on food, politics, movies and more. Most surveys pay between £1-£2, making this an easy way to earn £35 a month.
- Cashback sites – Want to get paid for all the stuff you were going to buy anyway? Well, if shopping online, sign up to a site such as TopCashBack or Quidco and get a percentage back on everything you spend. I’ve been using Quidco for a couple of years now, and have had over £900 back.
- Sell old items on eBay – Got a load of junk around the house? Then make it pay by listing it on eBay. You’d be so surprised what people will buy. Sometimes when you go to carboot sales etc, you’ll notice people have no idea that what they are selling is totally underpriced. You could pick that up for the cheap price, and sell online for the price its actually worth.