Summer’s over, time to get the finances in shape

Sun setting image depicting a holiday someone could go on with their family onces they get their finances back in shape

Pensions

MoneyPlus Features Team

16th September 2013 at 8:50am

Sadly the sun is setting on the summer, the holidays are over and the kids are going back to school.

It’s been great while it lasted and I even managed to get away on a sunshine holiday this year.  But now I’m realising that summer isn’t all sun, sea, sand and good times.  It can be an expensive time of year. I’ve made a clear dent in my savings and spent a lot more on my credit card than usual too.

Take stock of your finances

So if you’re like me, now could be a really good time to take stock of your finances.

There’s not just the summer holiday to pay for – the cost for a 2 week holiday for the average family of four being £4,792 (according to confused.com, 2013) – taking time off work can wreak havoc with your finances, especially if you’re self-employed.  And if you have children, you may have had to pay for childcare during the summer break which can be an extra financial burden – over 50% of parents expected to pay an extra £1,000 per child over the summer.**

So now it’s all over, maybe this is a good time to sit down and have a good look at your money.  Or to be more specific, how to save it.  Here’s our 5 step plan to getting your savings back on course again.

1. Before you start to save, deal with your debt.

If you have credit cards or an overdraft, in most cases the interest rate you are paying will be higher than anything you could get for savings.  So paying off your debts is the first place to start.

You may find the guidance on this site helpful.

2. Start an emergency fund.

No debts, but no savings either?  Start an emergency fund.  Begin with a small amount every month, say 5% of your salary, and try to build up a fund of at least £1,000.

But remember, it’s not called an emergency fund for nothing. Make sure you only use it for unexpected expenses, like fixing your boiler or repairing the car, otherwise you’ll find you’re dipping into your overdraft again and you’ll be back at square one.

TIP: Saving in a cash ISA is a good way to save for an emergency fund.

3. Set up some short-term savings goals.

Okay, you’ve got your unforeseen spending covered, now’s the time to set some short-term savings goals. A weekend in Rome, a nicer car, moving to a bigger house – these are all excellent reasons to save and nice goals to set.

If you can stick to your plan, you’ll find this is a much cheaper way of doing things than getting a loan or using your credit card.  For example, if you borrowed £1,000 on a credit card charging interest at 16.9% APR and took a year to pay it back, you’d pay an extra £169 in interest.  That’s a lot of cocktails on the beach!

You’ll find some helpful tips on where to put your short-term cash here.

4. Saving for the longer-term.

If you have an emergency fund and one or more short-term goals, you’ve already established some good savings habits. The next step is to look at some longer-term goals.  These could include saving up for a deposit on a property or, if you have children, their school or university education.

With longer-term savings, it’s wise to consider investments like shares or funds, as these tend to provide better protection from inflation over a longer period.  Investments are higher risk as their value can go down as well as up, but they offer the potential for higher growth.

TIP: As longer-term savings tend to be more substantial, making use of tax-efficient options is a good idea. ISAs can be a great way to do this.

If you’re comfortable taking on risk for the potential of higher returns, a Stocks and Shares ISA is a great first step into tax-efficient investing.

5.  How’s your retirement looking?

Of course, the ultimate long-term goal is retirement. More than perhaps any other kind of saving, the later you start, the more you need to put aside each month to achieve a good level of income once you start to take your pension. So starting early makes it more affordable.

Retirement planning is a big subject, but you can find lots of helpful information to help you get started here.

And if you can follow these five tips, then your next summer holiday might not hit your wallet so much.

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