Just as with your physical and mental health, it’s important to look after your financial health too – because they are all interlinked. Here we explain what that involves.
Having a good look at your finances every six months will help you stay in control of your money, ensure your goals are on the right track and give you peace of mind.
This article will cover:
- How can I carry out a financial health check?
- What are some simple financial checks to carry out?
- How can I maintain good financial health?
- What can I do in a bad financial situation?
Related content: A simple guide to budgeting
What is a financial health check?
A financial health check is one which takes a holistic review of your personal finances and financial situation.
The idea is to help you better understand how you are managing your money and whether you are on track to achieve any financial goals that you have set – and if not, where changes need to be made.
This is not something you do every day. Twice a year should be sufficient, with the beginning of the year an ideal time to take stock.
When reviewing your finances, you should assess your:
- Spending habits
- Saving habits
- Debt levels
- Pension savings, including predicted state pension and pension funds you are invested in, and any other investments
- Financial goals
Life changes and so too might your financial goals, whether that’s to start a family or retire early. It is important to assess how your goals have changed and what financial decisions you now need to make in order to achieve them.
If you are looking for the best home for your cash savings, check out our top savings accounts in 2022.
Seven simple health checks
1. Assess your cash situation
An estimated 11.5 million people in the UK have less than £100 in cash savings to fall back on, according to the Money and Pensions Service.
We all need to save for a “rainy day” fund – a cash buffer that can get you through a tricky patch like the car or boiler breaking down, or some loss of income.
If you do have a cushion of cash savings amounting to 3 to 6 months worth of essential outgoings (great!) then you can skip this section. If not, don’t panic.Read more about which is best savings account for a lump sum.
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Five health checks for your finances
Firstly, it’s important to check that you have everything coming into your bank account that should be there. Using a budget will help:
- A freelancer? Check all your invoices have been paid on time
- Ensure you are claiming for any benefits that you may be entitled to
- If you are struggling, check what help is available from your bank or building society, or utility firm
- A credit card with a 0% interest rate on purchases for the next 12 months could be an option for financing any income loss or extra expenses, if you don’t have any cash savings
- The best deals are reserved for those with the highest credit ratings, so check your credit score and see what you can do to increase it
Now you need to focus on building up your savings. The ideal is to have an emergency pot of three to six months of your outgoings. The key though, is to just get started.
2. Look at spending habits
Even if you do have a decent level of savings, it’s a good time to review your spending.
Looking at a recent bank statement will highlight things you are paying for that you don’t need – or didn’t even know about!
Start small, it adds up:
- takeaway coffees – £3 every weekday = £780 a year
- lunches – £7 every weekday = £1,820
If you have serious concerns about your income dropping or losing your job or you struggle to stay on track with your saving then set yourself a challenge by switching to a “low-spend fortnight” or do a financial detox.
While saving money is not an answer to serious financial problems like redundancy, it can help and gives you something to focus on.
3. Switch utility and broadband suppliers
You really can afford the 10 minutes or so that it takes to review your insurance premiums, utility costs and broadband and mobile phone bills.
You could potentially save hundreds of pounds by switching:
- car and home insurers
- broadband and mobile contracts
- TV packages
It is worth noting that in the past switching energy providers was one of the best ways to save money on your bills. However, with the number of suppliers collapsing due to rising wholesale costs, it is likely that you are better off staying put for the time being.
Now is also a good time to review your credit scoring, bills and direct debits.
Read more: How to save money on your energy bill
4. Check your pensions and ISAs
If you’re paying into a workplace pension and have many years before retirement then falls in the market, as we’ve seen during the pandemic, will probably just be a blip on your pension’s timeline.
You have a long investment horizon and it’s highly likely the markets will recover. It’s tempting to avoid looking at the notifications but avoiding the bad times can mean missing out on the good times. Look for the opportunities:
- Consider increasing your pension contributions – you essentially get free cash from the government.
- Check what you’re invested in if you are almost at retirement – some schemes will move you into lower risk funds the closer you get, known as lifestyling.
- Make sure your “target retirement date” is correct – if your plans have changed tell your pension provider.
- If you are 55, wait to take your cash out – if the market is down, you may want to hold off taking your cash out. Annuity rates have fallen and taking the 25% tax-free cash will lock in the current value of your pot.
- Consider a stocks and shares isa – if markets are in a dip, some investors take the perspective of “buy low, and sell high”.
You may not be able to control the markets, but you may be able to control how much is siphoned off in tax, and how much you pay in fees.
If you are wondering whether you should take an annuity or drawdown, check out our article here.
5. Think about remortgaging
The Bank of England has increased interest rates nine times since December 2021 from 0.1% to 3.5% and rates are expected to continue to climb in 2023.
Andrew Montlake from mortgage broker Coreco says there has been a big increase in enquiries around remortgaging and how borrowers can save money or restructure their loan.
He says it pays to take financial advice and arrange a product transfer with your existing lender or remortgage first if possible. Check out whether now is a good time to remortgage here.
Those with savings may find that remortgaging onto an offset basis could make a big difference, by reducing their monthly payments whilst keeping their savings intact.
Example: If you have a £400,000 loan and £100,000 in savings, you would only pay interest on £300,000 – reducing your payments accordingly.
“The added benefit is that you still have access to your savings as and when you need them,” says Montlake.
For others, a straight remortgage to another lender, calculating the cost of any early repayment charges, or simply extending the term of your mortgage, may well be enough to ease the burden.
6. Write or update a will
Are you one of the estimated 31 million people in the UK who don’t have a will? Have a look at our Guide to wills on how to write one.
Or, if you do have a will, the extra time you may now have on your hands presents a good opportunity to check it’s all up to date.
Writing a will is not just about money:
- it makes clear who will care for any children
- who will be responsible for carrying out your wishes
- whether you want to be buried or cremated.
If your affairs are fairly straightforward, have a look at our independent ratings for online will writers for a low-cost way to create a will.
For some (quirky) inspiration, read how Tink has paid just £90 for her will and decided to donate her body to science and throw a Harry Potter-inspired funeral.
7. Educate yourself
Our final tip is to educate yourself on personal finances. It will help you gain confidence with money, and better help you with saving for retirement and your short term financial goals.
Want to know about investing in the stock market? Read our guide.
Intimidated by trading? We have financial advice on the best virtual trading apps!
Or what about a quick rundown on ways to pay less to the taxman? Get started on your self-assessment tax return now and read ten easy ways to cut your tax bill.
Maybe you want to give some thought to how you share your finances with your partner – how to split bills, whether you should get a joint account, that kind of thing? Yes, you guessed it, we have something for you right here.
Or if you are currently renting, and want to know about buying a property with a small deposit, we have something for you here.
How do you maintain good financial health?
Adopting healthy financial habits can take some discipline, but it gets easier once you get into a routine.
Here are some ways you can maintain good financial health:
- Keep an eye on your spending
- Cancel subscriptions you don’t use
- Pay off debt on credit cards or personal loans
- Pin down your financial goals
- Check your credit score (and make sure your details are correct)
- Transfer money into your savings account as soon as you’re paid
- Build up an emergency fund of at least three to six months worth of essential outgoings
- Consider speaking to a financial adviser
What to do in a bad financial situation
If you find yourself in a difficult situation, it’s important not to bury your head in the sand. But neither should you panic as help is out there.
Here are some tips:
- Write down your financial commitments in priority order
- Rather than rely on credit cards or loans, you could use your savings
- Think about your spending – is there anything you can cut back on?
- Speak to your lender to create a payment plan
- Talk to a debt adviser – the Money Advice Service has a list of free debt advisers you could speak to here
Important information
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