The Importance of Good Financial Management

According to figures, the average British adult had £866 in disposable income a month in 2022, with this £23 down when compared with 2020.

While this may seem like a sizable sum, it varies wildly from one household to another, while the rising cost of living and inflation above 9% continues to make it harder for citizens to manage their finances.

Of course, your financial circumstances can be improved through prudent money management, which can help to optimise the amount of disposable income that you have each month. But what steps can you take to manage your money better in the current economic climate? 

Start by Establishing Financial Goals

When managing anything, it’s much easier to work towards accomplishing clear and achievable goals.

This is particularly true in the case of finance, as saving and optimising your cash relies on discipline, motivation and an understanding of precisely what you want to achieve.

These goals can vary depending on your circumstances, while they may also be short or longterm in nature. For example, you may want to increase the amount of cash you save each month and build towards a big-ticket purchase, or reduce your monthly outgoings and create a more frugal lifestyle.

Regardless, the process of creating goals helps you to manage your finances more effectively, as you look to work more constructively and make informed financial decisions over time.

Understand and Organise Your Savings

In instances where you’re able to reduce your spending and optimise savings, you should be able to commit more to your savings each month.

However, it’s also crucial that you organise your savings and strive to get the most out of your capital, to ultimately make this work for you.

For example, you may want to split your capital across different savings vehicles as you continue to accumulate wealth. So, in addition to retaining some cash in high-yield ISAs and traditional savings accounts, you may also want to consider investment assets and secure stores of wealth like bonds and stocks.

Ultimately, you should aim to strike a delicate balance between risk and reward, based on your outlook, financial objectives and the value of your cash holdings.

Tax is also a consideration, even if you work as a PAYE employee. For example, any income that you generate from stocks will be subject to capital gains tax, eating into your margins and potential returns.

So, you’ll need to factor this into your decision-making, and we’d recommend that you refer to a comprehensive tax guide to help inform your investment moves.

The Last Word

There are numerous benefits to good financial management, and not only during times of recession or economic contraction. At any time, this can translate into better financial management and more savings, enabling you to accumulate wealth steadily and securely.

This can also create financial security for your future while improving your mental wellbeing and making it much easier to achieve your long-held fiscal goals.