I was watching Dragon’s Den (BBC UK) the other day and was intrigued by how the contestants had perfected their pitches when selling their products but almost always got tripped up when it came to one area the dragons are most interested in… the numbers and financial returns. Many of us take care of our health through routine visit to the doctor, dentist etc. We have an annual service for our cars to ensure they are road safe however, the same cannot be said for our finances. I have also been guilty of this.
I am going to write a series of blogs that focus on different aspects of finances and key areas to review. I will look at income and expenditure in detail to see areas that could be reviewed. A financial health check can be carried out annually or every 6 months. This should enable you to decide if your income is sufficient to cater for your current lifestyle or if you need to get a higher salary or different sources of income.
Let’ s start by looking at the income which is a key aspect in becoming financially healthy.Firstly, compile a list of all the income. The income needs to include salary, investment income, savings and other sources of income.
The following set of questions would need be answered;
• Is your income enough to finance your lifestyle?
In my early 20s I remember walking into a popular shoe shop and seeing a pair of shoes that I immediately liked. I tried them on and convinced myself to buy them there and then. I got to the till and the store assistant offered me a store card which meant I could buy the shoes on credit and pay later. The shoes were being sold for £40 but because I purchased them using a store card which I paid off a few months later, the final cost of the shoes ended up being more than the original cost because of interest charges. Was it worth it…NO!
Failure to review finances and understand what you can or cannot afford can be highly expensive. Lack of planning can lead to debt which means you are paying more for items that cost less.
• Can your salary be increased?
Making yourself more valuable by gaining a qualification or experience in a specialist area are ways of increasing your salary. Requesting more responsibilities from an employer or applying for a promotion can result in a salary increase.
• Are there other income streams that can be created?
Extra sources of income can be created by monetising a hobby that you are
My little sister is a talented make-up artist. She does this alongside her full-time studies and is able to make extra cash. She is a very creative person and the bulk of her knowledge regarding make up is self-taught, however she spent a few hours watching YouTube videos in order to perfect her skills.
• Are your savings working for you?
Ensuring that your savings are in the right savings account or investment can give you passive income (income you have not had to work for). As a rule, the interest being received should be higher than the inflation rate in order for the money to maintain its value.
Inflation – is the increase in prices of goods and the reduction of the value of money. If £1 bought you a bottle of milk and there was an increase in inflation with time you would need more than £1 to purchase the same bottle of milk.
Currently the returns on savings account are very low due to low Bank of England interest rates however, the returns can be maximised by saving in an ISAs. Interest received on ISAs in the UK for balances below £20k are tax free. Fixed term saving accounts also offer better rates of interest and should be considered.
Answering the above questions honestly should enable you to begin to make a medium to long term plans on how your income can be increased.
The next article will focus on expenditure in the meantime, please feel free to comment in the section below.