• Rob

Money management

It has been in the news recently that over 4 million people in the UK are currently subjected to what is called deep poverty.

This is shameful on so many levels.

As a first world country that, by many measures, is one of the wealthiest countries in the world, I find it incomprehensible that we find ourselves in this situation. How and why so many UK citizens struggle to provide what many would consider as bare essentials angers and troubles me greatly.

A degree of this comes down to wider economic issues that are difficult to mitigate against at the personal level. There is also the thorny issue, as yet to be adequately addressed, on the provision of financial education in schools.

Putting these larger political and societal issues to the side, however, there are some steps that can be taken on the individual level that can help to alleviate this awful situation.

Taking time to get a handle on your finances can lead to many tangible benefits; it can help you stay on top of your regular outgoings, pay off any debts you may have, provide a stable home environment, offer you flexibility in how you live your life and allow you invest in your future.

The first step to taking control over your finances is by writing out your budget; this will take a degree of effort, but it’s a fantastic way to get a snapshot of your income and expenditure. Key to this is writing it down. Do not rely on doing this in your head as you will forget something.

Writing down a budget will mean you will be:

Less likely to get caught out by unexpected costs

Able to spot areas where you can make savings

In a great position to save for your future

Less likely to end up in debt

Better equipped to make financial decisions

So, how do you about doing this?

Over half of UK households keep a regular budget and most of those say that it gives them peace of mind about how much they are spending and makes them feel better about life in general. To make a start, you’ll need to sit down and work out how much you currently spend on:

Household bills, e.g. mortgage/rent, utilities, council tax

Living costs, e.g. food

Financial products, e.g. insurances

Family and friends, e.g. presents

Travel, e.g. car costs, public transport

Leisure, e.g. hobbies, sports, holidays

The best way to get this information about your income and expenditure is by checking your bank statements. Make sure you have more than one month’s worth so you can get a better idea of what comes in and what goes out. You may need to set aside a few hours to do this, but I promise you it’s a valuable investment of your time.

It’s important to remember that you can save this and come back to it any time you like; your life situation is almost certain to change and with it your incomings and outgoings.

My advice would be to keep this information in a spreadsheet, but that is a personal preference. If you want to use pen and paper that’s fine. The key thing is to write it down!

There are also a large variety of free budgeting apps available if you are more comfortable/familiar with that. Additionally, some banks have an online budget tool that can take information directly from your statements.

Whatever works for you!

Once you know where you are, its easier to see how you might get to where you want to.

If you find that you’re spending more than you’re earning, you will need to have a think about where you might be able to make some savings as this situation is not sustainable.

Group your spending into buckets and see where you are spending and determine if alternatives are available. Some easy examples (appreciating that this is simplistic) could include making your lunch at home, buying and cooking food in bulk or cancelling a subscription that you no longer use (the gym membership is a common one here).

One habit that I have is that I check my bank statements every day in order to keep a note of how much I’m spending and on what bucket. This can be quite a sobering exercise and takes some time to get into, but after a while I have found it to be second nature. This is especially helpful as the vast majority of my spending is done by card, so it makes it very easy to keep an accurate record.

Involve everyone

As appropriate, get everyone in your family involved with keeping to a budget. Sit down together and make a plan that you can all stick to. Work out how much money is available and agree between you what you’ll spend on each thing and how much each person can have responsibility for. I truly believe this to be an invaluable exercise, as it involves young people in the world of finance from an early age and gives them responsibility.

Reducing your spending

Once you know where you are, where you want to be and people are engaged and motivated by what you are trying to do, now is the time to make choices on how you spend your money. It’s not necessary, and often not feasible, to make large, dramatic changes to your lifestyle in order to save money. However, cutting back on the “little” things can add up to a big difference.

For example, if you spend £2.00 on a coffee every week day this adds up to £520 every year. I feel it’s worth letting that sink in just for a minute or two.

Other ways that you maybe to make reasonable savings are:

Checking to see if you are able to get a better deal on your utilities.

Shopping at a different supermarket (where possible) for your food and home goods

Cooking more meals and, where possible, cooking in bulk

Cutting back on monthly outgoings/subscriptions such as gym memberships, charitable donations and media packages

Be flexible

Life can be unpredictable so try to review your budget and your spending if there’s a change, or at least every couple of months; you may get a salary increase, which means you can save more, or you may find that your household bills have increased, which means that you will have to cut back in another area.

It is also important, where possible, to build in a degree of wiggle room, so that if you do find yourself with reduced income for a period of time, you are able to use the reserves that you have built up.

Set a savings goal

Most people find it hard to get motivated about saving, but it can often be easier if you set a goal that you can work towards.

As above, when it comes to saving, the first step is to provide for some wiggle room. This is money that you can use if an unplanned event occurs, e.g. your car breaks down or you are unable to work for a period of time. The rule of thumb figure that seems to be most prevalent is three months’ of normal outgoings.

It is highly unlikely that you will be able to save this money straight away, but it can be empowering to have this as a target to aim for. An effective way of doing this is to put aside an amount of money per month, alongside other expenditures, into a savings account and to try not to treat it as money that is yours to spend.

My advice after you have built up this wiggle room amount is to buy something, not necessarily expensive, as a reward for persistence.

Once you’ve got your wiggle room fund up and running, its important to determine some more savings goals. These could include:

Saving for a house deposit

Buying a car without taking out a loan

Taking a holiday

Having some extra money to cover maternity/paternity leave

Investing in your loved one’s futures

The important thing is to make this goal personal to you; you are more likely to stick to it if it means something to you and you can see the benefits that it will bring. Saving for the sake of saving is, in my experience, not an effective way forward.

Regularly review your budget

It's important that you periodically review your budget as your situation will change and your expenditure will increase with time; food, household bills, travel and other living costs may all increase. Regular reviews ( I would suggest annually) will also help you to identify areas where you are spending more than you thought and also where you may be able to make savings. This also means that your budget is a true reflection of your current situation and will allow you to make informed decisions about your future.

Seeking help with debt

If you’re finding yourself struggling with your outgoings, especially the following:




Council Tax

It’s important to not bury your head in the sand and to take advice from a free debt advice charity immediately.

Being able to manage money should be about more than just surviving or, in the case of the 4 million people highlighted in the article, not even that. It should be about taking control of an important aspect of your life, being able to provide a comfortable and stable environment and to aspire to a future that is different to your present.

Being able to effectively manage your money takes practice and, as mentioned previously, is something that needs to have greater emphasis within the education system. At the start, planning ahead and resisting instant gratification will not be easy and may possibly go against years of behavioural norms. The more you are able to embed these habits int your life, the easier it will be to manage your money, live the life you want to and to truly prosper.



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