Six Simple Steps to Financial Freedom

Sort out your finances with an Advantage personal loan!

Finally it’s summer! We’re enjoying the sunshine, and can get out and about again with the lifting of Covid restrictions. Life is good.

So now seems a good opportunity to sit back and take stock of our lives. What are our hopes and dreams for the future? And what are the things that we would like to see happen during the rest of 2021?

Whatever your thoughts and aspirations, one thing that will really help you to achieve them is getting in control of your money. To be in a healthy financial position where you can find ways of financing the things you want to do, and are not worrying about money all the time.

There is no magic wand that can change your financial situation overnight, but there are simple steps that you can take which will gradually help turn things around.

Let’s take a look.


Step 1: Create a budget

Having a budget may sound boring, but it is one of the best ways to get on top of your finances. Unless you know where your money is going, you will never be able to get on top of things. You may find yourself sliding further and further into debt, without really understanding why.

Creating a budget is easy. Most people do it on a monthly basis. You just need one list of all the money you have coming in each month – your income – and another list of all your expenses per month. These expenses will include regular payments such as mortgage/rent, household bills, credit card payments, subscriptions etc, and also the things that you spend money on day to day such as food, transport, children, pets, clothes, sports, socialising, personal care etc.

Some people prefer to keep their budget in a notebook, others on a computer spreadsheet. And, of course, there are many apps around that can help do the job for you – for example Emma or Money Dashboard. Your bank may also have a budgeting app that you can link to your bank account.

However you do it is completely up to you. But take the first step and get started as soon as possible.


Step 2 : Test your budget

This is where many people go wrong. Creating a budget is only the beginning. It is no use to you unless you test it out. Your finances might look great on paper / spreadsheet / app, but is your budget realistic? 

So for 2-3 months, it really is worth keeping records and comparing what you think you are spending with what you are actually spending. Include every single thing that you spend. Then at the end of the month, add everything up and see how the figures match with your budget. 

You may be horrified to find that you are spending way more than you thought on some of the categories. But it is important that you know, because then you can decide what to do about it. You either need to adjust your budget to accommodate what you are spending, or change your spending habits.


Step 3 : Balance your budget

At this stage you may realise that you are often spending more money each month than you have coming in. This is why you are struggling with debt. So it’s time to change all that.

You need to look at ways that you can either make extra money or reduce your spending. Ideally both.

  • Make extra money

Our recent article How to Make More Money in 2021 contains some really good ideas for ways you can look at boosting your income. Whether it’s changing your job, starting a business as a sideline, selling goods or making money from something you own, there are many different options out there.

  • Reduce your spending

There are often ways that we can reduce our spending. These will depend a lot on your individual circumstances, but some areas to look at are:

  • Checking regular payments to make sure they are all still needed. If not, then cancel them.
  • Checking direct debits to see if there any that could be reduced or spread out more evenly.
  • Getting a better deal from your suppliers or switching suppliers, for example energy, mobile phone, broadband. Check out comparison sites such as USwitch or Money Supermarket for help.
  • Planning all your shopping carefully and economising wherever possible. This is particularly important for regular shopping such as food shopping, but should also be applied to every other area. For example, our article How to Look Stylish for Less has lots of hints and tips about how to save money on your clothes shopping.

It may take a while to balance your budget, but you will then be living within your means. You will also have a realistic overview of your monthly finances, and the confidence to know that you are getting on top of them.


Step 4 : Begin to pay off debts

When preparing your budget, some of your expenses may be related to paying off debts, for example credit cards or loans. The sooner you can get these paid off, the better. Carrying debt is a strain on your finances and prevents you from using the money for the things you really want to do. It can also be stressful if you are worrying about how to pay things off.

A good way to get going on this is by putting all your efforts into clearing one of your debts. You may want to start with the smallest one so that you can get rid of it quickly. Or focus on the most expensive one to save money. Do all that you can to get rid of this first debt, then use the monthly repayment from that debt into the next one on your list. And so on. Gradually the amount of your overall debt will reduce and you will begin to see light at the end of the tunnel.

If you have lots of different debts and find it difficult to keep track, another option may be to take out a debt consolidation loan, pay off all existing debt completely, and then just have one remaining loan to manage. Advantage Loans offer personal loans for this purpose, so do get in touch if you think we can help.


Step 5 : Start building savings

Savings are the key to financial freedom. If you have savings, not only will you be able to cope with any kind of financial need or emergency that comes your way, but you will also be able to enjoy the good times and happy events in your life.

Here are five easy ways to start building some savings:

  • Set up a regular direct debit into a savings account. See our article Where is the Best Place for your Savings? for ideas on where to save. Even if you can only manage a small amount to start off with, getting started is the main thing. 
  • If you get any gifts, wins, or other unexpected money, put half of it into your savings. Then enjoy spending the rest: even half the money is still more money than you had to spend before.
  • Each month, give up one item of non-essential spending. For example, takeaway meals or coffees, alcohol, on-demand movies. Put the money you would normally spend on these into your savings.
  • See if your bank account has a “save the change” option. Many banks do this. You can set up a separate savings account with the same bank, and it will then round up your spending to the nearest pound, and put the difference into your savings account.
  • Have a savings jar in the home for cash. At the end of each day, put any loose change into the jar. When the jar is full, take it to the bank. You’d be amazed at how quickly this can mount up.

It is not easy to get into the discipline of saving, so it can help to have clear goals that you are saving towards. Whether it’s a home, a holiday, or a big family celebration, displaying relevant inspirational images and phrases around your home can help you to keep focussed when the going gets tough.


Step 6 : Keep on keeping on

If you follow the five steps above, you will be well on the way to getting on top of your finances. But to really succeed, you need to make sure that this is on an ongoing basis. It’s easy to get started then lose impetus. But you need to keep your budget under review – as circumstances may change – and also make sure that you are not slipping back into bad habits such as overspending or running up debt.

So always keep on keeping on. Your financial freedom will be well worth it in the end.


Check back here soon for more financial and lifestyle tips from Advantage Loans.