Each year, countless personal money managers use the first quarter to assess their finances. The New Year represents a fresh start, so January, February and March lend themselves to financial health checks, which can be quite revealing.
Unfortunately it isn’t always good news, especially considering the season. Christmas spending comes due during the first quarter, as well as insurance policy premiums and other annual renewals. As if that isn’t enough, cold weather complicates the picture, pushing energy spending well-beyond average monthly levels.
Though it may seem like financial forces are working against you, your early-year evaluation can actually keep you focused for the rest of the year. Use the following tips to your advantage, keeping you on track toward a balanced budget in 2015.
Assess Your Debt
It is hard to make headway eliminating personal debt, until you know exactly where you stand financially. Evaluating your finances at the beginning of the year gives you the tools you need to create your annual budget. Start by creating a spending ledger, broken down into common categories like these:
- Housing
- Food
- Entertainment
- Insurance
- Motoring
- Savings
The precise categories matter less than your dedication making entries to your spending ledger. As long as you understand your own system and account for all of your outgoing cash, your budget categories need not be the same as your neighbor’s. Your goal is to track spending for a minimum of one to three months.
As you accumulate data, you’ll notice patterns emerging, which is exactly the feedback you are looking for. Repeating costs, like mortgage payments and monthly contract obligations stand out because they are included each and every month. These “fixed” costs represent your baseline spending. With a few months’ worth of spending information, you’ll also see where the highest levels of discretionary spending occur. Recreation, fashion and others spending areas are ultimately some of your best targets for debt reduction, because they are not essential purchases.
Prioritise Payments
Millions of UK residents fear falling behind during the first few months of each year. If your cash flow slows, you may need to parcel-out funds precisely, in order to stay a step ahead of debt collectors. As you analyze your spending data, note the most essential payments contained within your monthly budget and proceed accordingly.
Paying ahead on a credit account, for example, may not be your best approach when the mortgage payment is about to come due. Likewise, devoting your entire basket of resources to appease a single creditor may leave you vulnerable with other parties. Remember, you are ultimately responsible for protecting your credit and erasing debt, so don’t be pressured by aggressive tactics from creditors. There are also quick and easy solutions for making ends meet should you have the need.
Set Long Term Goals
Effective money management accounts for immediate daily needs, but you must also consider a long-term debt reduction strategy. As you gain control of personal cash flow and budgeting, look beyond making ends meet, toward eliminating debt.
Spending is at the heart of ongoing debt problems, so staying true to your budget is an essential first-step toward reducing debt. To keep downward pressure on your personal spending levels, set goals for reducing monthly discretionary buys. Use the money you save each month to make higher payments on outstanding debt. Not only will you accelerate your debt repayment timetable, but you’ll also save money on interest payments.
If you find it difficult to maintain long-term budget disciple, consider a formal Debt Management Plan, which establishes guidelines for paying-down debt balances. The agreements outline repayment terms overseen by the Financial Conduct Authority (FCA). As long as creditors agree to the arrangement and you keep pace with repayment, this structured payback might be your best option.
First quarter finances paint a bleak picture for families facing Christmas payments and other debt. Fortunately, with a little discipline, climbing out of debt is within reach. Use these and other common sense approaches to reduce your outstanding balances and ease financial pressure. Above all, keep good terms with creditors to protect your rating, and always face repayment problems head-on.
