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Knowing Your Finances

Apr 22, 2022 | Business Finance, Episodes, Personal Finance | 0 comments

This episode of the The Money Compass podcast was published on 20th April 2022. You can listen again by heading to our episodes page, or on your favourite podcast player.

In this episode, Julie and Emma discuss the best ways for you to get to know your finances.

Episode Highlights

The 3 key things of getting to know your finances are:

  • What money do you have coming in?
  • What money do you have going out?
  • What money have you saved?

Rediscover the conversation

Julie Hunt
The big question for today is how is your training going for our climb up Snowdon for charity later on in the year?

Emma Knights
Well, I’m not going to lie, I actually put on my new pair of walking boots this weekend, went for a nice little stomp around in them and I think I need some bigger socks. They might be slightly too big.

Julie Hunt
Oh, right. Okay, then which sort of socks have you got?

Emma Knights
Well, I just had normal socks on because I chucked them on quick at the time. So, I need some proper walking socks on I think they’ll be alright then.

Julie Hunt
You will have to borrow a pair I’ve got hundreds of pairs of walking socks.

Emma Knights
I do remember you have thousands of pairs of socks, like an unreasonable amount of socks in your house.

Julie Hunt
Sock liners too. It is quite difficult because as we live in Norfolk as some of our listeners will know, it’s really hard to actually train for going up a mountain. I think we will have to run up and down gas hill. So, for those of you who are local, will know that gas hill is the biggest hill in Norwich. I think I will have to run up behind you and basically whip you to keep you into shape.

Emma Knights
I think you might. I’m not going to lie, I normally go for a run around where I live and while you were away, I went for a run near your house. It is definitely hillier near your house than it is where I live because I could not run.

Julie Hunt
Oh, you didn’t run up Church hill did you?

Emma Knights
I think I did.

Julie Hunt
Yeah, I normally run down Church hill and go back up the other way.

Emma Knights
It just shows someone that doesn’t know the area very well doesn’t it.

Julie Hunt
Depends how brave you’re feeling, so excellent. I have to say I need to do some more training because although I’ve been doing lots and lots of walking while I’ve been away, I definitely need to get myself up ready and at peak physical fitness.

We need to drag Lily out as well. Get her out and make sure she’s doing her training too. I don’t think she realises what she has taken on. This will be a bit of a challenge for her but I’m sure she will be fine.

Anyway, so today we’re going to be talking about knowing your finances. So Emma, do you think you know your finances?

Emma Knights
I’d say I know them pretty well.

Julie Hunt
When we look at knowing your finances, people wonder what does that actually mean? To me, what that means is making sure that you know what you’ve got coming in, what you’ve got going out and if you’ve got any savings and what you’ve got saved, because I think before you can make any financial plans for the future it’s really, really important to know what you actually already have.

Okay, so I’m going to test you now Emma. So, what’s coming in? What would you need? If we’re going to do this as an exercise, what things do you need to gather before you get your pen and paper or your spreadsheet open?

Emma Knights
Well, I’d say either a bank statement or a wage slip would be a very good start to know what your main income is.

Julie Hunt
Yeah, if you’re self-employed definitely.

Emma Knights
If you have income from self-employed, you might have a self-assessment or something like that, that you’d use instead. If you get income from an online business or something it might come in through PayPal, or another kind of payment method like that.

Julie Hunt
Stripe is quite popular as well nowadays.

Emma Knights
They’re going to be good places to start to see exactly what you’ve got coming in.

Obviously, if you’re looking at your wage slips, you need to be careful that you’re looking at how much actually physically comes into your bank account. Not the gross amount before you pay tax and everything because obviously, that could cause you a problem if you’re writing down all this money that you have coming in, and actually half of that has gone out in tax and things first, you’re going to want to make sure you’re looking at the right figures.

Julie Hunt
Absolutely. Anything else Emma?

Emma Knights
I think that’s everything off the top of my head. Have you got any extras in there?

Julie Hunt
Yeah, the only thing I thought about was obviously thinking about things like if you’ve got any loyalty cards as well. I know for years, I had a boots card and I think I had about 20 pounds sitting on it for ages and ages and ages and in effect, that’s actually cash in the bank because if I need to go and buy shampoo, conditioner, toothpaste, rather than actually having to spend it actually out of my bank account. That’s money sitting there ready to spend.

Emma Knights
That’s a really good point. I had that with a nectar card, and I managed to buy my nephew’s Christmas presents from Argos with it.

Julie Hunt
Yeah, that’s really good and also Tesco’s get your Clubcard points and that can either come in money or vouchers which you can then do things with as well. I think lots of supermarkets have quite good things, as well.

So, kind of knowing what you’ve got there, especially if money’s a bit tight, it’s probably quite good to make sure you know, what everything is that you’ve got kicking about.

Emma Knights
Once we’ve had a look at all of those, what do we do with it, Julie?

Julie Hunt
Well, I think the next thing to do is we know what money’s coming in and it depends whether you’re a pen and paper kind of girl or your spreadsheet person. I don’t know what about you Emma? What do you prefer?

Emma Knights
I like to spread myself around. I like a bit of both. But if I write it down and I make a mistake, then I always regret it and think why didn’t I do this on a spreadsheet?

Julie Hunt
Yeah, to be fair, I’m a bit of a pen and paper to start with and then again, it gets moved to a spreadsheet because I’m like ‘Why did I not do this in a spreadsheet in the first place? It would be so much easier’. It would just add up for me. I wouldn’t’ have to sit here with a calculator or like trying to hold my fingers trying to work out what it was but yeah, no, definitely.

Once you got an idea of what’s actually coming in, that could be on a monthly basis, or it could be a weekly or it could be an annual, it really depends on how you get paid. If you’re self-employed, your monthly income could fluctuate, but try and do it so you’ve got a figure that matches how your outgoings go out.

A lot of us have our outgoings go out on a monthly direct debit. Not all of us, but the majority of us do, so try and do it so it matches how your outgoings go. Do what’s right for you, there is no right or wrong for this. This is your own personal kind of record and so you understand where your finances are at, don’t try and square peg round hole your finances.

Emma Knights
I really need to learn to stop nodding in agreement to everything you say I need to remember I need to speak, or nobody can see me.

Julie Hunt
This is very true. But it’s good to see, I can see that you’re nodding at me, which is also very nice to know that you’re agreeing with what I’m saying.

We’re going to go on to outgoings now. So, you’ve got your money coming in, what’s going out? This is an area where a lot of people can really make a difference because I don’t think we realise sometimes until you actually really go dive into this and delve deep into what’s coming out of your bank account, what you have actually coming out that you possibly could make some savings on. Let’s make a list of what you’ve actually got going out.

Emma Knights
Yeah, so I guess again, you go through your bank statement. This time, we might have credit card statements as well. It might be that you have more than one if you use one for work things and one for personal things or whatever it may be. Make sure you look at all of them because you need to keep everything together in one place. Again, PayPal another place where we often spend things, it’s linked to Amazon and eBay, or all these different websites and you quite often just press pay now and it disappears out and does that always come directly out of your bank account? Or do you have to then put money into there so there’s another thing there, anything else Julie?

Julie Hunt
I think it’s probably most of the places where your money goes out from? The next thing is to look to try and categorise your outgoings. You need to get yourself together a list of everything that’s going out, right through from your mortgage or your rent, right down to that coffee that you’ve had on your way to work in the morning and then make that list. Then what I would like to do is then go through that list and work out which of those items are what you would class as essential and which you would class as lifestyle.

Emma Knights
Go on then Julie, what is an essential outgoing?

Julie Hunt
Essential outgoings to me would be something like your mortgage, your rent, utilities things that are important for your living. Eating and heating and I mean, eating being the eating at home, not the pizza takeaway every Friday night. But those kinds of foods, making sure you’ve got enough food to live on. The essential things to make sure that you can survive.

Then your lifestyle ones are the things that you could do without but are nice to have. For example, that coffee on the way to work in the morning, because she could really make one at home or even get one when you get to the office in the coffee machine at work.

Emma Knights
Yeah, all the luxury items where you could buy shampoo and conditioner, that’s like a couple of quid or something like that. But you like to have something that’s a lot more expensive. So, it’s thinking about what which of those items are luxury things and do you really need them and what’s essential.

Julie Hunt
I find my shampoo and conditioner, I always try and get it when it’s on offer in Tesco’s because 9 times out of 10, it’s on offer.

Emma Knights
When they are you buy a few, so you’ve got a few in the cupboard.

Julie Hunt
Absolutely. By the time I then get around to seeing it’s on offer again, I’m then starting to get low it’s like, oh, it’s on offer again and off I buy it again so I think you can make some savings there.

Emma Knights
I must admit when you have to pay full price though you do then think this seems really expensive.

Julie Hunt
No, absolutely. I know what you mean because I’m obviously older than you Emma, I have my vitamins every day and I find that the vitamins are really expensive. I wait until its buy two get a third free in Tesco’s. Mind you 9 times out of 10 when I go in it is like one box left or there’s two boxes left. But yeah, I always try and to get it when it’s reduced so I can then save a bit of money because otherwise it really adds up.

Emma Knights
Once we’ve got your list of lifestyle and essential outgoings what do we do with them Julie?

Julie Hunt
Well then, your lifestyle ones this is where you can then look at making some savings when you start making a plan for the future. But at the moment for this for this episode of the podcast is just basically making those lists and being aware of what you really need to spend and what you don’t need to spend.

I think one thing to remember is that what might be an essential for you, might not be essential for someone else. A good example of that is going to be the internet or having a computer so when I grew up, now I know I’m obviously old, we never had a computer at home. I probably never had a computer at home until about probably 10 years ago and even now it’s a work-related computer. I don’t feel I really use it for anything other than work. Whereas for other people – so for example, Sophie in the office, she said the other day that it was really important for her that the internet went down, it would be like the world ended for her, because it’s a really important part of her lifestyle at home. For her, it would be an essential, whereas for me, it possibly wouldn’t be quite as much fun, essential.

Emma Knights
I said to you earlier, my auntie and uncle, they said to me the other day, we don’t have Wi-Fi at home or anything, as long as I’ve got enough internet on my phone to send a couple of pictures or receive a couple of pictures of the grandchildren. I’m not worried about it at all.

Julie Hunt
This is it. What you might think is essential other people might not. What you can say is for lifestyle, and people might think is essential. Again, this is why this list isn’t easy for you to just kind of like copy list for someone else. This is very, very personal to you and I think when you look at that list, by knowing what your outgoings are, knowing what you perceive as essential and what you perceive as lifestyle, that’s really, important. Making that break down means you can then go on to do other things.

Another thing when we’re looking at in goings and outgoings is also things like your credit score. I have to say I haven’t actually checked my credit score for a couple of years, which is obviously quite naughty of me. And when I was writing my book, I was looking at researching credit score and making sure that I was up to date on everything that was going through, when I checked my credit score, I was well not exactly surprised, but to find my credit score is quite low, because I don’t actually have a credit card in my name. I’m married so we have joint credit cards, and I’m the second named person on the account. So, I then had to go get myself a credit card, which I used very, very lightly, which then helped up my credit score. But Emma I know that you’ve got your credit score on your phone on your app, which is which I need to do as well.

Emma Knights
It’s not something I necessarily need. But it’s just one of those things it automatically does it and pops up every month and says this month, your credit score is blah, blah, blah, blah, blah. This morning, I just had a look on there just out of curiosity to see what it was, and it tells me that the UK average credit score is 585 out of 1000. In our local area, the average score is 616 out of 1000 and I’m quite pleased that mine is actually quite high, It’s 670 so it’s higher than the average. But it’s interesting to have a look on here, because it’s actually popped up to say something’s been added to my credit file and it’s not something that I recognise, so without this app, I would have never known it’s there.

So now it’s flagged up to me, it’s something I’m going to look into, to find out what that is, is it something that I’ve actually done? Is it a mistake on the file? What is that? I think it is important to keep check because if I hadn’t have noticed that, if it is something that’s detrimental, that isn’t necessarily even meant to be for me, I wouldn’t have known.

So come next year, I might be looking for a mortgage and they say, oh, no, you can’t have one because of this on your credit file and I’d have been like, what, and it could have put me in an awkward position to then have to try and sort out at the time. So at least I can kind of be proactive and sort that out.

Julie Hunt
Absolutely, I think it’s really important to keep an eye on your credit score as you say, a monthly check that’s fine, you probably don’t need to be checking it daily. But certainly, just having caught an eye on it and keep an eye out for dodgy items that you’re not expecting.

Emma Knights
Like I say, I would never look unless it was on my phone, and it automatically popped up every month. I’d forget about it. It’s a really handy thing that it just reminds you.

Julie Hunt
That’s really good. Another thing to think about as well is we’ve obviously looked at your income, we’ve looked at your outgoings and looked to make sure your credit score is good and obviously when you’re making your financial plans for the future, that’s something that you might definitely need. But it’s also what do you already have in place savings wise, and Savings Investments and pensions?

Who remembers those little build society books? How many of those are still kicking around in drawers in places. They reckon the statistics are that there is actually 850 million pounds of unclaimed money sitting in banks and building society accounts across the UK.

Emma Knights
That’s a phenomenal amount of money. It’s quite scary. I know it’s obviously not all one person but surely people would miss that money.

Julie Hunt
But I guess it’s kind of like a couple of pounds here and there and is probably quite easy to build up If you think about it, it’s quite terrifying.

Emma Knights
How many accounts must there be in just old accounts sat there doing nothing?

Julie Hunt
It’s interesting. I wonder how many of them are those little building society books? I reckon a lot of them are so I don’t know what the percentage is, but I would say there is a lot. But I’ve got even more scary statistic volume, this is something we could all do and make sure we look after. There is actually 19.4 billion pounds in unclaimed pension pots in the UK.

Emma Knights
Wow. Think of how many people could have the retirement that they always dreamt of if they just kept track of that money and went and found it.

Julie Hunt
Yeah, absolutely. They say when there’s only one in 25 people instinctively think to tell the pension provider when they move house or get married or do anything changes that they might need to let them know about. We see that a lot as well, because we have clients who, when they get the pensions and it’s in a maiden name, sometimes two marriages later.

Emma Knights
Oh, I’ve moved house three times since then. But it could be this address, or it could be this address, or it might be this one.

Julie Hunt
It is kind of like a thing whereas if you can keep on top of those. I guess if you’ve got pensions, or you’ve had pensions in the past, and you haven’t seen the annual statement, because it’s a requirement to send an annual statement each year, obviously, they can’t do that if you’ve moved house and not told them because it’s going to be gone away on their on their file. It’s a case of maybe tracking it down. So go back through your past, go back for where you’ve worked, check to see whether or not you would have had a pension at that time. Basically, see if you can track them down.

Sometimes it’s definitely worthwhile. You might have got the old paperwork from 10 years ago kicking around still and you might be like, oh, I haven’t said anything about this recently. You never know how much money is actually sitting there because over time, money grows, and you might find you’ve got a surprise.

Emma Knights
It’s incredible how many clients we have that come in and say, ah, I found this paperwork I don’t know if it still exists, and I’ve seen them have up to 100,000 pounds in a pot that they’ve had to sell or that they just forgot about and didn’t know about. It’s incredible that someone cannot know what they have.

Julie Hunt
This is it. We had a client last year, he didn’t think he had anything in his pension and he had moved house and hadn’t had a statement but when we actually investigated it was 120,000 pounds. I’d love to have those problems unfortunately I think I’m too organised. I don’t think I’ve got any hidden pensions. But it is out there and that’s money that’s actually yours, which is basically sitting in an unclaimed pot.

So, if you’ve worked somewhere, you think you’ve got a pension, you haven’t had a statement, you’ve moved house, it’s really worth just going back through working it out and backtracking and see if you can track down these pensions. Not saying there’s going to be huge amount in them, but at least they’re coming to you and they’re not going in that unclaimed pot, which eventually ends up with a treasury. If that money is yours, then you definitely should try to get hold of it. But yeah, so I would say that’s a massive take home as well.

Emma Knights
I must admit, that’s something I do every year, as in throughout the year obviously, I know how much I’m saving on a regular basis into different places. But every year at the end of December, I have a little book that I write in it, how much I have in savings in all the different accounts and then in total, how much I have in savings and investments and how much I have in pensions.

Don’t ask me why I do it because it doesn’t necessarily change what I do or change my plans or anything. But it just helps me keep track. It’s nice to look back over the years to see oh, wow, I managed to put this much away this year and I saved hard this year and I’ve done this and oh, wow, I’m going to actually be able to achieve this now in X amount of time I’ve been able to do that. It’s just a nice record to have and look back on as well.

Julie Hunt
Yeah, no, absolutely, I think it does make a massive difference keeping a record making sure you know, even if you’re not going to spend that. For example, your pension, you’re not going to be able to get hold of until you’re potentially 57 but, it’s still your money, it’s still part of your future, it’s still something you can use as part of your plan when you’re making long term plans for the future. It’s always important to keep a track of it.

We’ve mainly talked about personal finance today. But one thing we probably just need to touch on is business finance. I think really what we’ve just discussed, all of what we’ve talked about really applies to business finance, as well. Know what money is coming in, and where that money is coming from. Knowing your pricing, making sure that you know you’re charging your worth. Making sure your outgoing is you’ve got a list of what your essential outgoings are, so if you’ve got an office your essential rent for that office or if you’ve got a mortgage on it, or your IT support those kinds of things that have. All those kinds of things and what your work style expenses are as well.

Again, what’s important, I think sometimes what we call work style is sometimes quite important. So for me, I think we spend things on work style things, which are about team building and some of that I think is actually quite essential because team building a really, really important part of the business for me, I think you need to be thinking about those kinds of things.

Emma Knights
Then it’s one of those things if you needed to scale back rather than doing something every month, you might only do something every other month.

Julie Hunt
Rather than buying Costa you go and buy a box of hot chocolate you can do different things. Rather than buying a round of Costa which might cost you 20 pounds or 30 pounds you go buy a nice jar of the hot chocolate for five pound some milk there’s ways and means of doing it. You can do things on a budget. You don’t have to spend a fortune on team building.

There’s a lot of organisations out there that do team building events, but you can kind of do a lot of stuff yourself quite reasonably I mean, we managed to run an entire Sports Day last year, which I think cost about a tenner. Which I thought was very impressive. Whereas we could have possibly paid a lot more if we bought an external organisation for team building. They might not have bought in in the inflatable Limbo though.

Emma Knights
No, very true. But there would have been alternatives, I’m sure.

Julie Hunt
There would have been alternatives. But there’s lots of ways you can do it, which are quite reasonable, as well you can look at different things. I think that’s important, again, with your business to know what’s coming in what’s going out. I think also, then you can see where your difference is with both your personal and your business, if you have more money going out than you have going in, then you need to make changes.

Emma Knights
I remember an accountant, once telling me that her pet hate about people, was when they would just turn up at the end of the tax year, basically with a carrier bag full of receipts, and say, here you go, and they wouldn’t have any record of how much they’d actually spent other than this bag of receipts. I think, how on earth could you run a business like that not knowing what your actual outgoings were until your accountant says, you’ve spent this much.

Julie Hunt
This is it and I think what happens is a lot of businesspeople are very, very good at what they do whatever that might be, however, when it comes to money, it actually terrifies people. I’d like to hope that you know, for those of you listening today, by just thinking about it, and writing it down, this isn’t to make you feel more scared or to terrify you. This is to help you understand better and hopefully, these are quite simple steps that you can take to see what’s coming in what’s going out. Then you can then start looking at where you should make changes. Then if you do need to get some professional help from an accountant or from a financial services, then you know you’ve got those figures in advance, so you can start making plans.

Emma Knights
Definitely. Thank you very much, Julie, for telling us about how to know your finances. I look forward to what we have in store next time.

Julie Hunt
Oh, yes definitely. It’s my fun topic next time. Thank you very much and I look forward to the next one.