“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.”