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Managing your money 

One of the most common questions we get asked as Independent Financial Advisers is “How do I make the most of my money?” This question is of particular significance given the fast approaching festive season.

We see financial management as a journey at Sterling & Law which begins when you finish your education and start working. Early priorities will range from paying your rent, putting food on the table and building capital for a deposit on a property. Around the age of 30 at the latest, you should have started putting money into a pension for your retirement. Later, your considerations may include moving home, education for your children or contributing towards a wedding when your children get older. There will be holidays to consider, Christmas spending and, if you’re a normal person, random and unexpected expenses along the way.

All this requires planning. However, before planning on any journey, it is crucial to know your starting position and your starting position is your budget; i.e. your understanding of your income vs expenditure. This is the most basic and important tool for effectively managing your money. It can be done on a scrap of paper and involves no fancy software. However, budgeting, although easy is quite unpopular. This is because it shows you in hard black and white exactly where you stand from a financial standpoint. And sometimes, hard facts can be uncomfortable.

The benefits of budgeting

1: Control:  Would you rather control your money or be controlled by your money? Budgeting can save you the grief of overspending and give you a vice like grip of your finances; which is a good thing.

2: Focus: If you have financial goals, having a strict budget could help you achieve them faster, especially if you’re working with limited resources. You can prioritise your expenditure to ensure that you do not spend unnecessarily on anything that does not contribute to your financial goals.

3: Awareness: Being aware of what is coming in, what’s going out and where it’s going will save you from wondering where on earth your money went at the end of the month. Your budget will tell you what you can afford, what you can save and where you need to make reductions in expenditure. You might even decide after budgeting that you need a pay rise or a different job.

4: Confidence: Being organised and knowing where you stand financially gives you confidence. If in debt, you can make the adjustments you need to ensure that you get out and stay out of the red. Once out of the red, you can then decide exactly how much you can save towards your financial goals.

5: Clarity: Budgeting will provide you with an early warning system for potential problems and help you make adjustments before the problem actually manifests itself. For example, a sudden expense such as a gearbox failure may throw you off course. But by having a budget, you’ll know exactly how far off course you are and what might take for you to recover. You’re also more likely to have savings available to be able to deal with the problem as a budgeter.

So, how do you make the most of your money? Start with a budget. List all your monthly outgoings and measure them against your expenditure. This will tell you where you stand and knowing exactly where you stand could help prevent you from falling.

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