Getting financially straight can seem like a huge mountain to climb, especially following a change in circumstances.  It is important, for your own peace of mind, to understand your situation just as soon as you can – so don’t put things off warns financial planner, Denese Molyneux.

Firstly, understand what your income is and where it is coming from.  For most of us there will be one main source of income – earnings from our employment or pension income for those who are a little older.  Other sources of income are state benefits, maintenance payments and interest and/or dividends from savings and investments.  There will be a limited number of income sources so identifying them will be fairly straightforward.

Second, and this is the tricky one, work out your outgoings.  Outgoings are not just the standing orders and direct debits being taken on a regular basis from your bank account.  Expenditure on credit cards, by cash or, increasingly, via smart phone counts too.

Outgoings fall into distinct categories; fixed; variable; optional.  Fixed items are things like mortgage payments or rent, utilities and insurances. These items underpin the costs of your home and the values are usually the same or similar month after month.  Variable expenditure fluctuates from month to month but is unavoidable; food, travel and essential clothing for instance.  Everything else, entertainment, holidays, meals out, that new top or pair of shoes that will probably only be worn once, is optional.

If you have sufficient income to cover all of your outgoings you can take a breath and be relieved that, for the time being, you will manage.  Don’t forget you will need to have enough put by for emergencies and longer term savings, such as pensions, to ensure your lifetime financial security.

For those whose outgoings outstrip their incomes there are three possible solutions: obtain more earned income; obtain better returns on savings or investments; spend less.  The answer may be a combination of all three.

Changing jobs can take time and not everyone has a large enough savings fund to make a substantial difference so, until you are straight, the quickest way to get back on an even keel is to really focus on the expenditure.

Money can, and does, trickle through our fingers.  Make a note of everything you spend and ask yourself, do I actually need this or do I just want it?  I often use the Costa Coffee analogy with my clients.  A medium latte costs around £2.50.  If you have one of those every working day on the way to your office that’s a total of £600 per year, assuming 48 weeks of 5 working days.

Do this with every item of optional expenditure and it won’t be long before you will be in a much better position.  Once you get to that point consider this…  If that £600 was put into a pension it would immediately be worth £720 with tax relief.  Invested at, say, 5% over 20 years that £720 would be worth £27,603.  That’s just one item!

There are many apps and other online programmes that will help you budget.  Find one you like and work with it.  A book I frequently recommend to help people on their way to financial security is, ‘The Richest Man in Babylon’ by George Clason.  This book offers 6 or 7 steps to financial security and will repay you the £5 it costs many times over.

The thought of dealing with your finances can be daunting, especially if it is something you are not used to doing.  Once you are on top of everything managing money day to day will just become routine; leaving you to spend more time doing the things you really enjoy.

Denese Molyneux is Chartered Financial Planner and Registered Trust and Estate Practitioner  who helps people identify, achieve and maintain the lifestyle they want.