To mark Financial Awareness Day on 14 August, experts and specialists at Novuna Personal Finance have highlighted the five key mistakes households make when trying to get a grip on their finances and the solutions that could save them. As the winter months approach and energy bills rise again, many are desperate to get a grip on their money before it’s too late.
Budgeting without a purpose
There are endless ways and methods to create a budget, and most people know that the key is to personalize it as much as possible based on income and expenses. However, experts highlighted that many people overlook a vital part of their budget planning: goals.
In the midst of a financial crisis or debt, it’s easy to feel overwhelmed by the numbers and simply say you want to “save up”. But experts warn: “You’ll be much more motivated to adjust your spending habits and hit your savings targets if you have something specific to work towards. People have understandably been hesitant to set ambitious goals, but as the UK economy shows signs of recovery, we’re seeing consumers start to feel more confident about parting with their money.”
To add an extra level of accountability and motivation, experts suggested sharing this goal with friends or family. This will also make them less likely to ask you out or order expensive treats if they know you’re trying to save money.
Loan
If you’ve set a savings goal, it’s easy to assume that the only way to reach it is by setting aside money from your income and avoiding unnecessary spending. However, borrowing money through credit cards or loans can help you save up for this goal much faster.
This method comes with one important caveat, according to experts: “However, borrowing money will almost always cost you more in total, so consider all your options carefully. If you decide that borrowing money is the right decision for you, always choose a reputable lender, regulated by the Financial Conduct Authority (FCA) and carefully read online reviews of the lender.”
Reviewing interest rates across different products and lenders is crucial to getting the best deal that fits not only your finances but also your goal. Some will also give you the flexibility to gauge what kind of repayment term would be most suitable for you and it is crucial to check eligibility criteria before applying to avoid impacting your credit score with checks for products you don’t meet the criteria for.
Spending habits
Many people are in denial about where their money goes or what their spending habits are, which can lead to a lot of disappointment if they try to get a handle on their finances. Experts explained: “Determining where most of your money goes each month is key to determining where you could make some positive changes to your spending habits.”
They suggested starting by making a list of your income and expenses and then categorizing them into essential and non-essential purchases. This can easily show you where you could cut back or reveal easy money-saving opportunities, such as canceling subscriptions you don’t use.
The experts then commented: “From here, you can see how much cash on hand you have left to meet your goals. If you decide to borrow money, this can help you work out how much you can afford to pay back each month. You can then use a tool like Novuna’s online loan calculator to get an idea of how much a loan might cost.”
Fixing the habit
It can be especially difficult to cut back on spending and purchases, especially when we tell ourselves we need something when we really don’t. But rather than cutting out all unnecessary spending altogether, the money moguls said it’s OK — and even more sustainable for your budget in the long run — to include some non-essential purchases, with the caveat that you shouldn’t go over your budget.
They added: “To help avoid impulse spending, wait at least 24 hours before making a purchase. You’d be surprised how often the urge to spend goes away after a few days! Many online retailers offer automatic discounts on items you’ve recently viewed but not purchased, which can also help you save some extra money here and there, so it may be worth waiting.”
Theresa Lindsay, group marketing director at Novuna Personal Finance, warned: “Don’t overdo it – keep track of your spending to make sure you can always pay your bills on time and review your situation every few months.”
Credit Score
Now that you’ve got all the other aspects of your budget under control, it may be time to review your credit report, which contains information about any credit you’ve had over the past six years. This highlights your habits and tendencies when it comes to debt and credit management. You can also improve your credit score through non-financial measures, such as registering to vote.
However, it’s also critical to make sure the information on this report is up to date to avoid errors when you need to use it to apply for credit in the future. Experts warn: “Even something as small as a typo can have an impact on your application, while other inaccuracies could be an indication of fraud and should be investigated as soon as possible.”
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