Managing Money: Personal Finance

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Money management is not the sexiest subject in the world, but remember the old adage that "failing to plan is planning to fail."  Every once in a while it's worth sitting down and reviewing where you've come from, where you're at and where you want to go.  How often do you do this when it comes to your finances?

Where You've Come From

Why bother thinking about and reviewing where you've come from?  Surely there are better things to do with your time?  Well, consider this -  you are at your current position in life because of the decisions you've made.  You made those decisions based on the information you had at the time.

The question is: are you happy with the decisions you have made to bring you to your current financial standpoint?  If you are, then congratulations - you are probably one of the approximately 1% of people in the U.K. who can call themselves financially free.

If not, then it's worth reviewing why you have made the decisions you have.  If you're not where you want to be financially, then you will probably need new knowledge and action.

Where You're At

Sometimes the hardest thing is being totally honest with yourself.  We all tend to bury our heads in the sand and carry on repeating old habits to some degree - even if deep down we know we're on the wrong track.

It's virtually impossible to start moving forward unless you get a grip on your current situation.  Ask yourself the following questions and answer them honestly:

  • Am I happy doing the work I'm doing?

  • Am I happy with my current level of income?

  • Do I have a financial plan?

  • Could I be more careful with what I spend my money on (at least in the short term)?

  • Do I know what my outgoings are each month?

  • Do I keep track of my personal finances so I know what my balance sheet looks like each month?

  • Am I saving and investing enough each month to help me achieve my short, medium and long term financial goals?

  • Do I have peace of mind knowing that if anything were to happen to me or my loved ones, we're covered financially?

  • Am I happy with my current level of financial education?

You may be in a lot of debt and really struggling financially, in which case your priority will be to get out of debt and start building a positive balance sheet.

On the other hand, you may be doing quite well financially and are simply looking for more tax efficiency or for better returns on your investments.

Whatever your situation, do an honest audit on where you are right now and this will give you more clarity when deciding on where you want to go next.  You can download a free personal finance spreadsheet under the Money Guides section at the bottom of this page.

Where You Want To Go

How you manage your money will largely be determined by your financial plan.  As you move forward from where you are now to your longer term goals, then how you manage your money will change.

To illustrate this, let's look 'Mr. Typical' who is a 24 year old employee...

Early Adulthood

Mr. Typical is a typical university graduate.  He has debt in the form of a student loan and over £5,000 of credit card debt.  Mr. Typical also likes to spend his money on socialising and on his hobbies of playing golf and watching his local football team.

He is currently renting a 1 bedroom flat with his girlfriend and they are saving up for a deposit for their first home.

When it comes to financial planning, a young adults main priority is usually paying off debt e.g. credit card debt and saving for a home so they can qualify for a mortgage.  So, after their living and lifestyle expenses, virtually all of their money goes towards paying off debts and saving for a mortgage deposit.

Late 20's to Mid 30's

Six years later, Mr & Mrs Typical how have a mortgage and are new parents to baby Jessica (with another baby on the way).  They have managed to pay off their student loan and have reduced their credit card balance down to £2,000 (if it wasn't for that expensive wedding...!).

Their immediate priority is to build up a savings pot that would cater for things like household repairs and maintenance, motor repairs and general rainy day funds.  This should be about three months salary.

One of their main priorities now is making sure they are financially protected should anything happen to either of them.  If Mr. Typical were to become unable to work through an accident or ill health, there is no way they would be able to afford their mortgage and living expenses.  Also, if either of them were to die while their children are still young, the surviving partner would need a regular income to look after them.  They will both need some form of life insurance and health insurance to protect them against unforeseen circumstances.

This is also the stage at which Mr & Mrs Typical might be looking to increase their household income.  This may involve Mrs Typical getting a part-time job or earning an extra income by working from home.  Mr Typical may also be progressing his career and earning potential or may even be considering starting his own business.

Surplus income each month will allow them to afford better holidays and the little luxuries in life.  They should also be considering making regular contributions into a pension or ISA even if the contributions are relatively small.

Forties & Fifties

With their son and daughter both approaching school leaving age, Mr & Mrs Typical may be saving to help pay for their children's higher education costs.  These costs can be quite significant and will put pressure on the household income, especially if two or more children plan on pursuing higher education.

Once their children have 'fled the nest' then Mr & Mrs Typical will be feeling better off, without having to financially support their children (they do wonder whether their children really appreciate all the sacrifices they have made for them over the years!).

With two good incomes, they can afford to take an extra holiday a year and pay off their mortgage early by making overpayments.  They can also pay more money into their pensions and ISAs to help fund a comfortable retirement.

As they approach the 'golden years' they look back, enjoy the happy memories and thank their lucky stars that they made a financial plan and learned how to manage money early in their lives.  They look at many of their friends who are worrying about their retirement and use the warning to make sure they financially educate their own children... even though they seem to be much more interested in partying and spending than learning and saving!


Retirement is the time in life when people want to enjoy the fruits of their hard work without worrying about lack of money.  Because Mr & Mrs Typical made provisions and had a plan for their retirement, they have the peace of mind that they can enjoy a comfortable retirement, which includes a couple of nice holidays a year, their own mortgage-free house and spare money to treat their grandchildren.

By taking sound advice, Mr & Mrs Typical also have the peace of mind that their estate will passed on to their children, grandchildren and local charity with a minimum of inheritance tax (IHT).

We live in times when people need to learn to be more self-sufficient more than ever.  The welfare state can no longer be expected to look after people in retirement, especially as life expectancy is steadily rising.  This is one of the reasons why many people who haven't made appropriate pension provisions will have to carry on working into their 70's.

Make a financial plan and then follow your plan and manage your money with discipline.  You too will then avoid having to worry about money now or in the future.

Useful Links

>>> Financial Planning
>>> Free Personal Finance Spreadsheet
>>> Save Money on my Car & Household Insurance
>>> Save Money on my Life Insurance Premiums
>>> Find A Good Savings Account
>>> Find A Good Cash ISA
>>> Learn about Stocks & Shares ISAs
>>> Learn about my Pension Options
>>> Learn about Tax
>>> Take out a Will
>>> Learn about Inheritance Tax (IHT)


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