New Year’s Resolution
If you’re heading into the 2020 holiday season yet again wondering how you’re going to pay for all the added expenses that come with it, then perhaps it’s time to consider a new years resolution to get your finances in order.

Research in the United Kingdom has found that almost half of Brits don’t have any savings at all. This means they find themselves in a bind when an unexpected bill comes along or they find themselves temporarily off work due to illness or a personal emergency. Without savings, the only way you can pay for these urgent costs is by borrowing. Regardless of whether you use a credit card, a payday loan, a personal loan, or an overdraft, these all cost money.

This means that anyone who doesn’t have savings will find themselves spending more money, which in turn, inhibits their ability to save. This is what is known as a “debt trap”. It’s called this because it can be difficult to escape from.

Additionally, anyone who doesn’t have savings isn’t earning interest or returns from investments that can help them to grow their wealth over time. Compounding the problem further. What’s more, a study conducted by Nottingham University Business School and Willis Towers Watson found that 42% of British people are not interested in saving for the future, and instead focus on “enjoying their life now”.

So if you’re like to escape a debt trap or you’ve been living “for the now” and would like to start taking saving more seriously, here’s how you can get your finances back on track in 2021. 

Evaluate Your Current Situation

It may not make for pleasant reading, but it’s important to understand what your current financial situation is before you can begin to make changes. The way to do it is to add up all of your “assets” and subtract all of your “liabilities”.

Your assets will be the cash in your bank account(s), including any savings you have. Also, add any investments you have made (at their current value), such as stocks & shares, bonds, or precious metals like gold.

Your liabilities will include debt such as credit cards, loans, and financing on big-ticket items like furniture or cars.

If you own your home, you could also include the market value of your home as an asset and the outstanding mortgage balance as a liability. However, this could sway your figures if you own a home that’s dramatically increased in value or that you’ve been paying off for a long time, so it may be best to keep it separate.

Once you’ve subtracted your liabilities from your assets, you’ll be left with a number that represents your financial net worth. If the figure is negative, that means you’re in debt, while a positive figure means you own more than you owe.

Make a Plan

Make a Plan


Regardless of how great or dire your situation is, the next step is to make a plan. If you’re in debt, you need to find what interest rate you’re paying on each, and focus efforts on paying off the debt with the highest rate first. Clearing high-interest debt faster will save you money in the long run and mean you’ll pay off all your debt quicker.

You’ll also want to make a budget. Add up your monthly expenses, including utility bills, rent/mortgage payments, all loan repayments, food, and other expenses. Then subtract it from your income.

This will give you what’s known as your “disposable income”. You’ll want to set some aside for things you enjoy as this can help maintain your overall wellbeing while you save aggressively, but the majority of it should be focused on repaying debt.

If you have savings and debt, you may want to consider using the savings to pay off the debt. While you may feel more comfortable with a cash buffer for emergencies, you could re-borrow that money if you needed it. And since savings interest rates from most banks are now close to 0%, there’s little to be gained from holding on to the cash while you pay 5-30% interest on debt.

If you’re already debt-free, then make a commitment to save a set amount each month. You could set it up to leave your bank automatically each month 

Look For Ways to Save More

Next, you can start working on your monthly bills. By finding ways to reduce how much you spend here, you can increase the amount you can put towards saving or paying off debt.

There are many ways you can do this, and you’ll likely make the biggest impact by focusing on the larger bills first. For example, ditching an expensive cable or satellite TV subscription in favour of a cheaper streaming service like Netflix could save you £20-£100 per month.

You could take this even further, with free content from services like PokerStars TV, and Crunchyroll.

If you find you spend a lot on takeaways or eating out, try to cook more often at home. If you struggle with following recipes or cooking in general, then find meal kit services like Blue Apron or HelloFresh. These companies deliver ingredients to you in pre-prepared and pre-measured amounts, meaning you have everything you need without any complicated steps. If your grocery bill is already high, then delve into your cupboards and freezer, as you’ll likely find plenty of food you can use there before having to buy more. 

Measure Your Progress

You won’t know if you’re succeeding unless you track your progress. This can also help serve as a source of motivation as you can celebrate the fact that your efforts are paying off.

Regularly check that your spending is still inline with your budget. If it’s not, adjust it accordingly as it may mean you have more to use for saving or debt repayments, or it may mean you’ll need to cut back somewhere else to make up a shortfall.

You should also perform the assets/liabilities calculation every so often. This will help you track your progress and show whether you’re meeting your targets.