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Midlife MOT: wealth, work and wellbeing
Midlife MOT: wealth, work and wellbeing

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2 Where you’re at right now

In this first session you’ll start by looking at your current financial position with some checks on your financial health.

Then we will focus on three areas of personal finance:

  • Have you got enough money saved to deal with emergencies – a ‘rainy-day’ fund?
  • Could you trim your spending?
  • Could you reorganise your debts to cut the cost of borrowing money? The rise in interest rates since 2021 has reinforced the need to review your debts and check if you are paying more than necessary to borrow money.
The image is a drawing of two people looking at a line graph on a piece of paper. The line goes up and down and has two coins on it – implying the graph is about finances.

Before you get going, make sure you have access to all the latest statements about your finances – including your bank and savings accounts, your pension details, what you owe on any credit cards and loans you may have (including your mortgage). You’ll need this information as you work through your wealth check-up.

So let’s get started with Activity 1.

Activity 1: How are your finances currently?

Timing: Allow about 45 minutes for this.

Let’s start by putting your current finances under the microscope. With the rise in prices in the UK currently outstripping the increase in earnings for most people, this scrutiny has become an essential exercise for households.

Using the table below compile your current budget. Open the link in a new tab or window so you can easily find your way back to the course. If you prefer, you can do this by downloading and printing the Word version of the table [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] .

You can use estimates for those items where your spending is not immediately clear from the financial information you have to hand. Later you can refine your budget by monitoring your spending over several weeks to get more exact figures for your outgoings.

A few pointers:

  • You should find most of the details in your (online) financial statements.
  • Take care when including your credit card bill in your spending. If you’re buying goods and services with your card and you’ve accounted for the items elsewhere, just include any interest you pay on our card.
  • Include contributions to personal pension plans – but not those to workplace schemes as your contributions will be deducted from your salary.
  • Be thorough! It’s easy to forget or ignore certain items of spending.
  • You have the option to either use a monthly or annual budget. Using annual is better as it picks up all the income and spending which does not occur each month.
  • Add 5% to your total expenditure as there is a tendency for us to underestimate how much we spend (there’s a line in the table for this).
  • If you save the budget grid on your preferred device – tablet, laptop or ‘phone – you can then refer back to it in the future.
  • It should be a budget for the household – so, if you have a partner you may wish to include their income and spending too.

Be prepared to review your budget regularly to take account of changes to prices and earnings. Currently a review at least every six months makes sense given the fast pace of price rises for many goods and services.

*For example, if total expenditure is £20,000 you add on 5% by multiplying £20,000 by 1.05 = £21,000
Interactive feature not available in single page view (see it in standard view).

Discussion

Just completing this table can tell you a lot about how you may need to reorganise your finances.

  • Are you earning more than spending or vice versa?
  • If you are spending more than your income, how are you covering the shortfall? Are you using your savings or credit cards to cover the difference? You’ll know that credit card debt is usually a high-cost way to borrow money.
  • How much of your income goes in borrowing costs? Is there scope to rearrange your debts to get their cost down? We’ll look at how you could do this later.
  • If you have spare income after covering all your spending what are you doing with the surplus? Are you just leaving it in your bank account? If so, what interest rate does it earn there? Given high inflation it’s more important than ever to ensure you’re getting the best return possible on your spare cash.
  • Are you surprised about how much you spend on certain items? This could be on items of essential spending as well as discretionary.

Doing this budget exercise really gives you a close insight into your current finances and may well highlight some areas where you need to take action.