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How much do you know about money and finances? Most people’s knowledge extends as far as how to pay your bills, get a credit card and general spending; but there is more to money than just the basics. Have a read of the tips and definitions below, and you’ll be far wiser with your money by the end of the article!
Let’s take a look at some of most basic parts of finance:
Savings – The simplest way to save is to stick to not spending more than 90% of your earnings. On a very basic level, this leaves you with at least 10% left over to save. Another thing to make sure you are aware of is economies of scale. When you get a pay rise it’s tempting to start upgrading your lifestyle to match – but it’ll leave you in the same position as when you were earning less. You’ll still find yourself short of cash at the end of the month, even though you are bringing in more money. Instead of buying more, try to stick to the same budget you had before the pay rise – you’ll end up with far more in savings this way.
Debts – Managing your debts comes down to more than just making sure you pay them every month. There are things to do to make sure you are in control instead of chasing your debts. Get yourself a really good, organised budget. This is going to show you clearly where you can make some savings, and with that, you can chip away at even more of your debts and clear them faster. Another thing to do is to get your fixed costs lower. Make sure you are getting the absolute best prices for your energy suppliers, your insurance policies and travel. Always make sure you clear the debt with the highest interest rate first.
On to working and living:
Buying a home – One of the most important factors when it comes to buying a home is your credit score. But what exactly is a credit score? A credit score is a number that reflects the information in your credit reports – a low score can be detrimental to your chances of securing a mortgage (or other credit). It’s a good idea to check your score as there may be errors or past problems that can be cleared from your file, raising your overall score. If you do find any discrepancies you should contact the relevant company and explain your issue. It can take a while for these changes to take effect, so be sure to do this sooner rather than later.
Working – Most people in the UK get paid via PAYE (Pay As You Earn) and it allows an employer to deduct your personal income tax and national insurance from your pay and pass it on to HMRC. There may be other deductions like student loans or any pension contributions you may be paying. One thing to pay attention to is your tax code. You’ll find it on your payslip, P45 or the PAYE coding notice sent by HMRC. The reason it’s important is because you can use it to check you are paying the correct level of tax (not too much or too less). If you find your tax code is wrong you can get it adjusted, but it’s better to do it as soon as you can, especially if you find you have been underpaying tax. You can find out more here.