We understand having a strong financial future is important. But before you start working towards building your financial future, you are needed to build a solid financial base. We realise there is no definite step by step procedure for explaining a strong financial base. For this reason, our article connects the dots for you. Here is a simple seven-step guide for building a strong financial base.
7 steps for building a strong financial base
Step 1 – Assess the current situation
If you have been ignoring your financial condition till today, we believe that you are highly unaware about your current financial conditions. Hence, we advise you to assess your current scenarios. Here are some areas you need to focus on:
Debt:
Make a list of all your debts with the interests rates they have on them along with the balance amount
Savings/Investing:
What are your investments or savings every month? Is the amount that you are savings or investing auto-transferable?
Account Organisation: Make a list of all your active accounts (savings as well as current) and any service that has access to your bank accounts through a direct payment
Insurance:
Put together a list of all the different types of insurances that you have (health, death, life, etc).
All the things you will be putting together in this step will be helping you complete the other steps below. Store all the information that you have collected on a system that you understand, we normally recommend a spreadsheet.
Step 2 – Quick Wins
In this step, you will be stopping a few money mistakes, very quickly, that you have been doing for a long time.
Set up auto transfers to saving/investing accounts:
Even if the amount that you will be transferring to your emergency funds in as less as £5, do it. Get a savings account activated under your name and focus on maintaining it every month.
Step 3 – Conduct a Spending Review
Since you never paid this close attention to your financial situations before, we believe that you know nothing about budgeting or keeping track of your expenses. But making yourself habitual of tracking your monthly expenses will help you realise what resources majorly drain your money.
If you are not a fan of budgeting, you can go through your credit card statements to see where the money is going. Eliminate any thing that you think you can live without. Also, there are several apps that help you keep track of your spending and let you analyse them to see whether you are moving towards your financial goals or not.
Step 4 – Income
Whatever little or much you earn is a huge driver of your savings rate. But tell us one thing, are you being compensated fairly? Maybe it has been few years you got an increment or you have readily taken some additional responsibilities without being compensated. All we suggest here is that be objective, but do not undersell yourself either.
Step 5- Emergency Fund and Plan
For all the information you have gathered in the step 1 will be helpful here. We recommend you to have an emergency fund or an emergency plan. The emergency fund has money that can be used to cover expenses while you deal with shortage in income.
One way to earn some extra money for your emergency can be by claiming for mis-sold PPI. For over decades, people have been mis-sold the PPI policy which resulted into a scandal. Now the situation is that every other person in the UK was mis-sold the PPI policy.
Because of this reason, we believe that you might have mis-sold PPI on your previous financial products. Check those products and see whether you have had PPI or not. Once you discover that you had PPI and it was mis-sold to you, you can either make a claim yourself or with the help of a claim management company.
The information that you have collected in the step 1 will help you build your Financial Emergency Plan.
Step 6 – Set Goals
Investing towards building a strong financial goal is challenging. It is even more challenging when you have rise in your income and have to cut down on your lifestyle to meet your financial goals instead of spending furiously.
To help you through this, here are some goals you need to consider:
Emergency Fund:
Know how much you require to save and set a goal on how long would it take to fully fund it
Reduce Spending:
Set a goal to reduce your expenses in certain ways and identify where you are spending excessively
Investment Accounts:
Looking towards your current scenario, this would certainly increase your contribution towards your pension and investments plans
Make sure you write your short-term and long-term goals and hold yourself accountable for the same. Check every month to see how much you have achieved and how much is yet to be accomplished. Regularly reviewing your goals will motivate you and help with the next step.
Step 7 – Overcome your habits
It is essential that you are consistent in building a strong financial base. For this, you have to burn some of your habits. Here is our formula to do so:
Small Changes + Time + Goals = Long Term Habit
Take baby steps towards changing your lifelong habits. Going for big approaches won’t help change what’s necessary. It will take few months or even a few years to change your financial habits, but work on it and work on yourself to achieve them and you will be right on track for a more secure future.