To mark Financial Awareness Day on August 14, experts and specialists at Novuna Personal Finance have highlighted the five vital mistakes that households are making in trying to get on top of their finances – and the fixes that could save them. As the winter months draw near, with energy bills set to 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 around budgeting and most know that the key is to personalise it as much as possible depending on your income and expenses. However, the experts highlighted that many people are missing a vital part of their budget planning: goals.
In the midst of a financial crisis or debt, it can be easy to get overwhelmed by the numbers and simply say you want ‘to save’. But the experts cautioned: “You’ll be far more motivated to adjust your spending habits and reach your savings goals if you have something specific to work towards. People may have been understandably tentative 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 cash.”
To add an extra level of accountability and motivation, the experts suggested sharing this goal with friends or family. This will also make them less likely to invite you out or make pricey requests of you if they know you’re trying to save money.
Borrowing
With a savings goal in place, it’s easy to assume that the only way to get there is through putting away money from your income and avoid unnecessary expenses. However, borrowing money through credit cards or loans can help you save up to this goal far quicker.
This method does come with a major cautionary note, the experts shared: “Borrowing money will almost always cost you more in total though, so consider all your options carefully. If you do decide that borrowing money is the right decision for you, always choose a reputable, Financial Conduct Authority (FCA)-regulated lender and take a close look at the lender’s online reviews.”
Reviewing interest rates across products and lenders is vital to getting the best deal to match not just your finances but your goal as well. Some will also give you the flexibility to measure what type of repayment term would best suit you and it’s vital to check the eligibility criteria before applying in order to avoid disrupting your credit score with checks for products you don’t meet the criteria for.
Spending habits
A lot of people are in financial denial about where their money goes or what their spending habits actually are, which can lead to a lot of disappointment if you’re trying to take control of your finances. The experts explained: “Working out where the bulk of your money goes each month is key to figuring out 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 categorising your expenses by essential and non-essential purchases. This can easily show you where you could cut back or reveal easy money-saving opportunities like cancelling subscriptions you don’t use.
Next, the experts shared: “From here, you can see how much disposable cash you have left over to achieve your goals. If you decide to borrow money, this can help you work out how much you can afford to repay each month. You can then use a tool such as Novuna’s online loan calculator to get an idea of how much a loan could cost.”
Fixing the habit
Spending and shopping can be particularly hard to cut back on particularly when we “tell ourselves we need something when, truthfully, we don’t”. However, instead of cutting back all unnecessary spending completely, the money moguls assured that it’s okay, and even more sustainable for your budget long-term, to factor in some non-essential purchases, with the caveat that you’re not going over your budget still.
They added: “To help avoid impulse spending, wait at least 24 hours before making the purchase. You might be surprised how often the spending itch subsides after a few days! With many online retailers offering automatic discounts on items you’ve looked at recently but not purchased, this might also help you save some extra cash here and there, so it can pay to wait.”
Theresa Lindsay, Group Marketing Director at Novuna Personal Finance, warned: “Don’t overstretch yourself – stay in control of your spending to make sure you are always able to pay your debts on time and review where you are every few months.”
Credit score
With all other aspects of your budget under control, it might be time to check your credit report which contains information on any credit you’ve had in the last six years. This highlights your habits and trends when it comes to dealing with debt and credit. You can also improve your credit score through non-financial measures like registering on the electoral roll.
However, it’s also vital to make sure the information on this report is up to date to avoid any errors when you need to use the report to apply for credit in the future. The experts warned: “Even something as small as a typo can have an impact on your application, whereas other inaccuracies could be an indication of fraud and need investigating as soon as possible.”
