“Many of us feel a lot of pressure around the New Year to set goals and re-evaluate, especially given that 2020 was such a challenge,” says financial coach Ellie Austin-Williams.

“There’s something nice about having a clean slate, and feeling that you can put your mistakes behind you. But there’s a real danger in the mindset of ‘New Year, New Me’. Ultimately, it puts a lot of pressure on you to achieve the goals you’ve set.”

Here, we explore how to set realistic financial goals for 2021, from creating a budget that works, to shopping around when your WiFi or phone contract is up for renewal.

Take control of your money: Create a budget

There’s no better time than January to make a budget - it’s all about planning and taking control of your money. “Look forward and tell your money where to go,” says Pete Matthew, Chartered Financial Planner and founder of financial education platform Meaningful Money. To create a budget, Pete suggests dividing what you earn after tax into needs, wants and savings.

Starling customers can separate their earnings into these three categories by making use of Spaces, the feature that enables customers to ring-fence money from their main bank balance on the Starling app. Create two Spaces - one for needs, one for savings - and keep money for wants in your everyday spending balance. 

Needs include things such as rent or the mortgage, essential bills and food and travel to work. “Ask yourself: what does it cost to eat, live and work? Those are your raw basics. And they’re usually pretty fixed costs,” says Pete. Starling customers can work out how much money they’ve spent in previous months by looking at their Spending Insights, a feature that automatically categorises outgoings into groceries, travel, bills & services.

On pay day, move the money you need to live, eat and work into your ‘needs’ Space. Remember that you’ll have to move the money back into your main balance before you can spend it or pay an essential bill - something that could be prompted by the real-time notifications Starling sends for upcoming direct debits and standing orders. 

It only takes a few seconds to move the money across and it keeps your spending intentional. For example, if you only want to spend £65 on your weekly grocery shop, move only that amount back from the ‘needs’ Space into your main balance. Then create your online order and try to stick to that upper limit of £65. 

Your wants, such as a voucher for when your favourite restaurant reopens or a new pair of trainers, can come out of your everyday spending balance. And your savings can be kept in your ‘savings’ Space, separate from your main balance but easily accessible in case of emergencies or if you’ve saved enough to book a summer holiday or sign up to a new online course.

For many, the trickiest part of creating a budget is deciding how much to save and how much to spend. Selina Flavius, financial coach and founder of Black Girl Finance, allocates 50% of earnings for needs, 30% for wants and 20% for savings, known as the 50:30:20 rule. 

“I use it because it’s simple and it prioritises my essential bills and savings,” she says. “If you’re going to move a percentage, try to make it the wants category, but don’t get rid of it completely. You don’t want your budget to feel so draconian that you can’t ever use your money to enjoy yourself.”

Protect yourself from the unexpected: Start an emergency fund

If you haven’t already, now is the time to set up your emergency fund. “Going forward, it’s the biggest thing you can do to protect yourself from the unexpected,” says Pete, 45. “You can start it alongside clearing credit card debt, overdrafts or loans - even if it’s just £10 or £20 a month that you set aside.”

Pete Matthew, founder of Meaningful Money
Pete Matthew, certified financial advisor and founder of financial education platform Meaningful Money

Ultimately, Pete recommends aiming to build up between three and six months worth of essential living expenses. For many, saving this amount will seem unrealistic. But remember that there’s no deadline - anything that you can save is a huge positive. If there’s anything that 2020 has taught us, it’s that rainy day funds really matter.

Starling customers can set savings aside by going to the Spaces screen in the Starling app. Simply tap ‘New Space’, call it ‘Rainy Day’ or ‘Emergency Fund’ and add money as and when, or set up a daily, weekly or monthly payment. 

You could also link this savings Space to our Round Ups feature. That way, every time you spent money, a little would be rounded up into savings. For example, if you paid £23.47 for a supermarket shop, 53p could be added to your emergency fund.

Face your finances: Commit to a monthly money check-in

Not everyone likes sitting down to look at their finances. But committing to do that once a month could hugely improve your relationship with money, both in terms of how you feel and how much you spend.

Selina uses Starling to manage her business finances and is reminded to regularly check her finances by the real-time notifications we send. “The notifications telling you that this amount is coming in or that amount is low are really helpful - they prompt you to check your finances,” she says.

Selina Flavius, founder and author of Black Girl Finance
Selina Flavius, founder and author of Black Girl Finance

To make a financial check-in a habit, try combining it with a financial habit you already have in place. For example, if you check your bank balance the day before your rent or mortgage payment is due, check a few other things at the same time. 

Make a note of refunds you’re due and check whether you’ve been paid back. Look at your budget and adjust it if necessary. Think about subscriptions or contracts coming up for renewal. 

“Shop around for WiFi, phone contracts and energy,” says Pete. “It doesn’t take long and it can save you hundreds, sometimes thousands of pounds.”

He also encourages people to take action as soon as they can. “If you think you’ll struggle to make rent next month, warn your landlord now. Or if you have a mortgage, speak to your broker. Have those conversations and take every bit of help you can get.”

Ellie, 28, adds: “If you’re in trouble, speak to your bank. Most of the time, they want to help. They’re not out to get you. There are also charities out there that will help you.” Ellie, founder of This Girl Talks Money, recommends StepChange, The Money and Pensions Service and Citizens Advice.

Long term goals: Saving for retirement

Even though many employees are automatically enrolled into their company’s pension scheme when they join, many don’t know where their money is invested or who manages it. 

“Pensions are investments - people sometimes can forget that,” says Selina. In her upcoming book Black Girl Finance, she encourages readers to take an active interest in how and where their pension is managed.

Pete adds: “If you can, pay in enough that you receive the full company top up - nowhere else will you get that uplift, plus tax relief.” He also advises anyone who is self-employed to set up and regularly add to a pension.

Starling business customers can set up a pension by going to the Starling Marketplace and choosing a scheme from Penfold. For personal customers, PensionBee is available. Both offer a range of flexible plans with low minimum monthly contributions.

Set realistic goals for 2021

More often than not, financial expectations are set too high in January. The suggestions we’ve outlined here may not apply to everyone but we hope that there’s at least one thing you can do, even if that’s finding out the name of your workplace pension provider or looking into a budget.

Ellie Austin-Williams, financial coach and founder of This Girl Talks Money
Ellie Austin-Williams, financial coach and founder of This Girl Talks Money

“People like to shoot for the stars but if your financial goals are unrealistic, you’ll get into a cycle of not achieving them and feeling discouraged,” says Ellie. Like Selina, she uses Starling to manage her money. “If you don’t use digital banking yet, give it a go. It’s unquestionably the easier way to manage money.”

The above article is intended as general information and does not constitute advice in any way. You should take independent advice if you have any questions about your specific circumstances.

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