Keep an eye on the big picture

Make sure you take an 'holistic' approach to your finances. Then you can get the most value from your money.

If you’re a regular reader of Lovemoney, there’s a good chance that you’ve got a top credit card, a market-leading Cash ISA and an ultra-cheap mortgage.

All of which is great, but that doesn’t mean you’re definitely getting the most bang for your buck. The best money managers always make sure that they’re keeping an eye on their financial ‘big picture.’

So fine, you may have money in a market-leading Cash ISA, but have you asked yourself whether you’re paying enough money into your ISA each month?

And that’s not the only important question you should consider. Here are some more:

-          Do you have enough cash to cope if you were unemployed for six months?

-          Could you cut your spending and save more for your future as a result?

-          Should you invest some of your savings into the stock market? If so, how much?

-          Could you pay off your mortgage more quickly? (Assuming you have one). 

Personal audit

If you’re going to answer these questions properly you really need to do an audit of your finances. And the best place to start is your own personal spending. 

You may already have a monthly budget but have you analysed your spending in close detail? Are you sure that you couldn’t find some more areas to cut? The best way to do this is to give Lovemoney’s MoneyTrack tool a try.

You’ll be able to see all your card spending on one page, and your spending will automatically be put into categories such as ‘Eating out’ or ‘Gadgets’. You can also set budgets and monitor whether you’re sticking to them.

Using MoneyTrack could help you see whether you could potentially cut your spending and save more as a result. And then if you think you do have capacity to cut back, MoneyTrack can make sure that you follow through and cut back in reality.

What MoneyTrack can’t do

In fairness, MoneyTrack can’t help you do a complete audit. It can help you budget more effectively but it can’t tell you whether you should put more money in the stock market or whether you should pay off your mortgage more quickly.

The best way to answer these questions is to look holistically at all your finances and draw up a financial plan. If the prospect of doing that scares you, a good financial adviser or planner should be able to help.

Alternatively, you’ll find an introduction to the topic in Five steps to reduce your financial fear.

In essence, you need to figure out what are your non-financial life goals for the next 20 or 30 years. Perhaps you want to travel the world after you’ve retired, or maybe you’d like to provide the deposit for your kids’ first homes.

The next step is to estimate what achieving those goals would cost. If you think those costs are realistic for you, you could then plan your finances to make sure that you’ll have enough money. Then it’s a question of drawing up the plan and sticking to it.

Let me stress, it’s not just a question of spending less and saving more. You need to look holistically at your financial ‘big picture’, so that your money can give you the biggest possible benefit.

That may mean overpaying your mortgage, investing some money into the stock market, or a raft of other options. But the essential point is that choosing the best financial products isn’t enough. There’s a lot more you can do….

• Check out Lovemoney’s MoneyTrack tool for much better budgeting

More on budgeting:

Spring clean your finances

How to survive until payday!

Five tips to control your spending