What is ‘value’ is a question I sometimes explore with learners on apprenticeship programmes. What something is 'worth' to a business is often influenced by attitude towards risk. Some are happy to make mistakes, spend money and accept the possibility of losses to get bigger returns. Others tread more cautiously, fear of losses might limit returns, but what is important is stewardship; protecting what you have.
People are often the drivers of how much risk is tolerated, individuals drive decisions on the approach of a business or department. Some of us are natural savers, some of us spenders, and we can take these mindsets into our organisations. But how open are we to learning from what we see in our work environments? Regardless of a business’s attitude to risk, every successful organisation takes steps to manage risk.
Businesses like to identify risks (what could go wrong) and manage the potential impact of these (how do we minimize the problems they can cause us). We can apply the same logic to our personal finances too. Most of us have exposure to financial uncertainties in life, we never know when we might get an unexpected bill or when our ability to earn might be impacted by factors out of our control. While we need to live with these risks, we would be ill-advised to ignore them entirely. Building a financial buffer is an essential part of managing financial risks in our personal life.
There are always barriers that might make us think it isn’t a good time to get finances organised, but it’s never too early to think about budgeting and saving. These are my top tips for creating a financial buffer, or for paying down any debt you have:
- Budgeting sounds daunting, but strong financial skills are not needed to get bank and card statements out to figure out what your money coming in (income) and money going out (costs) are each month. List your income and costs, totalling each to understand how balanced your spending is compared to what you earn. There are several free apps and tools available online that might also help.
- If you have more income than costs, you are in a position where you can think about paying off any debt you have (loans, cards) or start saving. Set yourself realistic but stretching targets each month for how much to save or how much debt to repay and try to stick to them.
- If your costs are higher than your income (or more balanced), challenge yourself on what you can cut- identify essential costs to prioritise (such as rent and bills) and understand what is left is discretionary- you might be able to cut.
- Take the time every few months to review any direct debits on your bank statement- you may be paying for services you no longer use.
- Even your essential costs can sometimes be reduced- have you used comparison sites to check you’re getting the best deal on household bills?
- Don’t avoid starting to save just because you can’t put a meaningful amount away each month. Starting small can build up to something significant over time.
- Sometimes unexpected circumstances might present opportunities- if Covid has cut your spending, you might have an opportunity to pay off some debt or to start saving- make the most of it if you do.