I love a spreadsheet - the more columns, rows and formulae the better. My house renovation budget was tended to daily: it kept us on track; helped us make informed decisions when the project inevitably threw (many) curveballs at us; and, crucially, has left me with an accurate picture of what we spent.
But it wasn't always like this. When I first graduated I was terrible with money: heaping everything onto credit cards; not managing repayments; overspending (there were way too many dinners and cocktails); and generally not knowing whether the £1,000 balance showing on my account meant that I was overdrawn or in credit. Yes, really.
Over the years I've learnt a lot. Here are my top tips for getting out of the red, staying in the black and building up a secure nest for the future. It may seem a lot - but once you've got the basics set up this is a really simple way to take control and free yourself of financial stress.
1. Start with the basics: honesty and a pot of coffee
There's no point hiding the financial truth from yourself; being honest about where your money goes is the first step to taking financial control.
2. Set a realistic - not an idealistic - budget
It's important you set a budget that's realistic or you'll set yourself up for failure. If you've been burying your head in the sand about how much you spend on coffees on the walk into work, now's the time to 'fess up.
Whilst some expenditure is 'fixed' - e.g. broadband, council tax, rent/mortgage - you'll need to set an accurate budget for 'moveables' - the expenditure that fluctuates e.g. food, travel and 'fun spending'. Keep a close eye on one month's expenditure (keeping receipts or looking through bank statements will do) so that you can budget accurately.
3. Keep a spreadsheet of your monthly budget
This should include a line for each type of expenditure, including:
- All direct debits (variable amounts e.g. phone bills)
- All standing orders (fixed amounts e.g. council tax)
- The dates all of the above are taken from your account(s)
- Your budget for the 'moveable' amounts e.g. how much you plan to spend on things like food and travel
4. Have three accounts
I've found it's best to have three distinct accounts:
- The Current Account - your salary should be paid into the same account from which all direct debits and standing orders are taken. All your 'moveable' expenditure should then be transferred into The Spending Account.
- The Spending Account - it's much easier to keep a track of the money you can spend if it's in its own place (with no surprise direct debits sending you into the red).
- The Savings Account - keep your savings separate (even better if this account is with another bank and doesn't have a debit card) where it can pile up steadily without you being tempted to raid it.
5. The buffer
When you set your budget try to add a buffer in case you overspend in some areas, e.g. for times when all your family members' birthdays happen simultaneously.
6. Mobile banking
Download your account's mobile banking app. With just a few taps you can transfer money, pay bills and check your finances are on track.
7. Frequent management and maintenance
Check your spreadsheet at least once a month (and ideally weekly) so you can see how the monthly budgeting is working. Any overspend can be dealt with without incurring bank charges, and any underspend (hooray!) can be transferred to savings or left where it is for extra spending (hooray x 2!).
8. Interest-free management of debt
If you're paying interest on credit cards it's worth looking around to see what interest-free offers are available. For a smallish fee, this enables you to transfer a balance from an existing credit card onto a new interest-free credit card for well over 12 months (some banks offer deals for 30-36 months). All the money you've been paying the bank in interest can be put directly towards paying off your own debt.
9. Use online tools
My favourite website for working out your net income when throwing things like childcare vouchers and student loan repayments into the mix is listen to taxman - a simple calculator for your gross/net pay. If you're going for a new job, negotiating a pay rise or changing career, this is a great way to learn what you'll be paid each month. YNAB (you need a budget) is also a great tool for on-the-go budgeting.
10. Reward good behaviour
If you stick to your budget for the month, factor in a reward; cutting expenditure by just £10 a week will giving you a whopping £520 a year to spend at your behest.
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