Being good with money doesn’t have to be hard. It doesn’t really have anything to do with how much or little you have, either. Sure, having a lot might make everyday living a bit easier, but we’ve all read stories about wealthy people losing it all through poor management or bad decisions.
So, starting from where you are today, here are a few tips and strategies you could try out that’ll help put you in the driving seat when it comes to money.
Monitor Daily Expenses
Most of us have a fairly haphazard relationship with money. We work, it comes in, then we spend until it runs out. Rinse and repeat.
Before you can really direct your money into more useful channels, you need to completely understand where it’s going.
All you need for this is a simple personal record of your purchases, bills and income. And it’s easy to set up. In a notebook, or spreadsheet if you prefer, make four columns, then label them, starting from the left:
- Date – for when the transaction was.
- Item – for what bought. It’s important to track income too, so write in here where money came from.
- Amount – exactly how much you earned or spent. Be specific rather than rounding up or down.
- Balance – pay special attention to this column. Start it off by writing your current balance, taken from your bank statement, at the top. Each time you make an entry, add or subtract the amount from this running balance. Don’t forget to include your direct debits and standing orders.
To get started, this is all you need. Carry your notebook around with you, or save receipts and have a catch-up session every few days.
Analyse Your Spending
While it sounds simplistic, this basic system is at the heart of all professional accounting. It’s just documenting what is happening with money from one day to the next so you can step in and redirect it if necessary.
Once you have a couple of months of figures to work with, you can start your analysis.
Look for patterns of spending. You can find patterns by going through your figures and breaking them down into the categories that make sense for you. A category list might include:
- Rent or mortgage
- Motoring costs
There are lots more, this is just to give you starting point. Use the ones that apply to your own spending.
Add up the figures for each category to see how much they’re costing every month. It can be a bit surprising because we often don’t register small purchases, which can really mount up over time.
Armed with the knowledge from just this exercise, you can start making whatever changes you think will help you reach your goals.
Actionable Tips You Can Use Today
When you’re trying to save more, or simply spend less, it’s easy to go after the low hanging fruit. This is usually the stuff we do for fun. You might decide to go out less and cut back on treats, stop seeing friends for coffee and that sort of thing.
But doing this can make your life miserable, and you won’t keep it up. A better way of controlling your money is to find ways to cut the cost of essential but less fun spending.
- Look for expenses that don’t give much back, such as gym memberships when you don’t go very often, monthly subscription boxes for items you don’t always use, computer software that you don’t strictly need for professional purposes, or magazines you don’t read. Make a list of things you could cancel.
- Next, look through your bank statement again, hunting down direct debits. You might have some you’ve forgotten about, like random insurances for instance. Cancel those too.
- Then, shop around for cheaper deals on the necessary items, such as mobile phone contracts. You might make big savings by opting for pay-as-you-go. If you’re still under contract, find out how much it would cost to get out of it. It might be less than you think.
- Cut out unnecessary grocery expenses by making a meal plan, then devising a shopping list for the ingredients and buying just what’s on your list. Random top-up trips to the supermarket are always more expensive than you think they’ll be.
- See if you could share streaming services with another household via a family plan.
Only when you’ve cut down these expenses as far as you can, should you start thinking about allowing yourself fewer treats. One way of budgeting for hobby spending, clothes or just random fun things is to give yourself an allowance. Transfer this into a separate online bank account (Monzo or Starling for instance) via standing order. You’ll have a little pot to dip into without disrupting your main household budget.
Once you get into the swing of managing your money like this and realising the benefits, you can actually find the fun in it. It could lead you into a new career in accounting, but even if it doesn’t you’ll be in a position to really be the boss of your own money.
Note: this is a collaborative post.