Financial Makeover - New Year, New You

Everyone knows that Christmas can be tough on your finances. Aside from all the presents and socialising, many people’s household budgets go out the window over the festive period, leaving them wondering what they spent all that money on. But all is not lost – the New Year is a great time to makeover your finances and plan for the year ahead so that you can manage your money, sort out your debts and meet your financial goals in 2008.

Start budgeting:

Decide now that 2008 will be the year your finances get in shape. During the next few weeks we will be providing numerous ideas and tips to help you get your finances in line.

Our philosophy is that personal financial management should take its lead from the professionals. In business, financial management is not simply about managing day to day cash flow but rather monthly, quarterly and annual budgeting; setting aside sufficient cash to ensure a year of no surprises where all income and expenditure has been foreseen with a contingency set aside for any unexpected bills.

People effectively "cash account" with the money they earn. They concentrate simply on the short term, pay the rent/mortgage, pay the car repayments, the electricity and other utilities and then anything remaining is simply discretionary income. They feel they have the safety net of their overdraft or their credit card should any big bills come in. This is a naive and potentially risky way of dealing with your finances.

Our approach, which takes its lead from big business, is to plan for the next twelve months setting aside sufficient funds each month to cover those annual bills as well as budgeting effectively on a day-to-day basis.

First three steps

Identify the following:

1. How much you are earning
2. How much you are spending
3. What you are spending your money on

It is vital that you are honest with yourself even if you discover you spend 50% of your income on pick and mix! Avoid the mistake of overestimating your income and underestimating your expenditure.

Once you identify where your money is going you can see where you might need to make adjustments so you can achieve your goal of a year with healthy personal finances.

So your homework for the next few days is to sit down, take a page of A4 paper draw a line down the middle. On one side list any and all sources of income and on the other all expenditure. The idea is to include as much detail as possible. Include day to day spending, mortgage/rent bills as well as annual items such as car insurance, gym membership and any other expenditure you can foresee for the next twelve months. For items that are difficult to value such as weekly shopping bills etc., estimate them as accurately as you can.

This cathartic process is a major step on the road to financial recovery and good health.