Spring into action
When we “spring clean” our property after winter, we assess the current situation, consider how to improve it and then put these steps into action. The same can hold true for giving our finances a “spring clean”. And as the United Kingdom and Europe and other Northern Hemisphere countries emerge from winter, it’s an appropriate time to get started.
Setting aside dedicated time in your diary to take a close look at personal finances at least once a year is a healthy habit to build and might help cut the tendency to put off – or procrastinate about – unpopular tasks.
What needs to be reviewed?
The exact nature of a personal finance spring clean will vary depending an individual’s needs.
For the 12.5% in the poll who do not have a budget, a good first step is making one. As the How to… make a basic budget slideshow explains, this involves analysing income and spending, examining whether spending is in the areas considered important, then setting goals. Other tips are here, here and here.
Take a look at how job conditions, investment performance or lifestyle or economic changes in the last year altered financial needs and adjust the budget accordingly.
Perhaps tidy your files – checking you have all the necessary paperwork and safely disposing of the rest.
I don’t remember spending that...
Even those who have a budget could end up in a trap – as we tend to underestimate how much we spend. A study from the FSA in the United Kingdom on behavioural economics and financial capability explains how people persistently underestimate how much they will spend next month, even when they had reported this month’s spend seconds earlier.
In her column for eZonomics, buying behaviour specialist Bri Williams writes that studies show people tend to ignore exceptional expenses, such as a new computer or a lavish dinner on holiday. So people can end up overspending time and time again.
Her tip: “Stop tricking yourself this way, make an allowance in your budget for these exceptions. What you buy may vary but you are likely to spend something from this bucket each and every year.”