The new year is almost upon us and we will all be setting our resolutions for the next 12 months. Perhaps you want to improve your diet, quit smoking, learn a new skill, or pick up an old hobby that you have let slide over the years. But have you thought about improving your financial habits too?
The new year could be a perfect time to get to grips with your finances, so you can set yourself up to achieve your long-term ambitions and achieve the financial freedom you want. That is why we thought it useful to highlight a few common mistakes that people often make when they’re trying to get their finances in order, so you can hit the ground running from the start of 2023.
Not setting goals
If you are investing your money in a particular market or asset type, it is important to have a clear idea in mind of what you want to achieve. For example, are you looking to reduce your tax bill? Are you focused on generating additional income? Are you saving towards your retirement?
Only by having a clear goal in mind can you measure success or failure, and make changes where necessary to maximize your returns.
Not managing your debts properly
Many people have debts and financial obligations, from mortgage repayments to paying off your credit card bill. Staying on top of these commitments is one of the best things you can do if you want to put yourself on a firmer financial footing. Not only can it help you pay down debts and free up cash, it can also improve your credit score, so you’re more able to borrow money in the future, should you need or want to.
Not putting money aside for a rainy day
We can be hit with sudden and unexpected expenses at any time. Perhaps a costly appliance breaks down and needs replacing, or your home suffers serious damage that has to be fixed. It is always good to be prepared, in case of just such an emergency, with a pot of money completely separate to any pensions or savings accounts that you can use if needed.
Missing out on compound interest
Compound interest means you effectively get interest on the interest you have already earned. So if you invest a sum of money, it can snowball into a much larger amount over a long period of time. This works best if you do not access this money during this period and let it naturally increase.
It will mean that any savings will increase at a much faster rate than shorter-term savings that you are withdrawing from on a regular basis.
Not checking your credit score
It is easy to avoid checking your credit score until you actually need to borrow money or apply for a credit card, but if your credit score is low, your application could be rejected, which could potentially put your wider financial plans into jeopardy.
With that in mind, it is worth keeping an eye on it regularly, so you can address any factors that might be lowering your credit score and therefore increase the chances of your credit application being accepted straight away.
This is not a complete guide to becoming wealthy but they are proven tips that can help you with your finances as you move forward. They are small steps that you can take to help you on the path to financial freedom, but they can each yield significant benefits and results.
If you have any questions about getting your finances in order for 2023, please do not hesitate to get in touch with us, and we will be happy to go through things with you.
