*I’m not a financial advice, but I have been on a journey to educate myself.
When I first moved North for work, I was living alone in a new county, new town, far from home, and still in a long distance relationship. I had taken a cut in pay to get into the industry and I was no longer living at home so had increased outgoings. Whilst, I was very good at always making sure I had the money for rent and bills, I wasn’t that great at saving (and this wasn’t just because my salary was low).
Learning to manage my finances has been one of the most useful things I’ve done in life. It has been a journey and a process (and I’m sure I’ve got more to learn) but I finally feel like I have control over them.
Yes, I still worry especially as prices continue to rise rather quickly. However, knowing what goes in and out, and creating saving and spending pots has helped me to feel in control and plan ahead. It has allowed my husband and I to make bold and everyday decisions in our life with relative ease as we clearly know what we have and are likely to have over the coming months.
At any age it is helpful to get on top of your finances and spending but the early you can do it I think the better.
Tip 1: Keep a Record of Your Spending
Whilst this tip may not sound ground breaking. This is one of the most important and useful first steps, especially if you have no idea what your current bills or spending habits are. I personally do this manually although apps are available to help with this.
When I first starting tracking my spend I had lots of different categories but have since condensed down to the following; monthly bills, annual bills, food shops (including bathroom & medicine needs), fun spending (e.g. eating & drinking out, books, cinema trips, clothes etc.), petrol & travel, house & garden, gifts, and charity. However, if you are starting out, splitting the fun spending down more can be useful to see where you may be spending an unnecessary amount of money. For example, pre-Covid my husband and I noticed our eating and drinking out bill was uncomfortable high for us. Yet, if we weren’t tracking it we may not have appreciated how much all those little amounts added up.
Tip 2: Make Sure You Can Pay Your Essentials
Once you start tracking your spending it can make the budgeting side much easier. A crucial first step to budgeting is to make sure you know how much your essential spending a month is. For example, your rent/mortgage, utility bills (gas, electric, water, internet, phone), travel costs, and food shops. Add them all up and either move it to a separate account where the bills can come out of, or keep a tracker of what has gone out and what hasn’t and therefore how much should still be in you account to pay for these things.
I use a mix of both of these methods. On pay day I move my money around so that only my bills & food shop money is in the bills & food shop account. However, I also have a list of my monthly bills with the dates they are due to leave my account and I tick those off as the month goes by so I can check I haven’t over spent and still have the money needed to pay for these.
An advanced step of making sure you can pay you essentials is to also work out what all your annual bills are (those that you pay once a year), divide that by 12 and put that amount aside monthly so paying your annual bills doesn’t feel as impactful on your salary on the month they need to be paid. I’ve found this useful particularly as quite a few of my annual bills go out around the same time of year. In the past I would feel like I had no money for a few months in row, but now because I spread the cost throughout the year it is less painful. When the time comes to pay an annual bill I just pull the money from my annual bill fund.
Tip 3: Budget & Make Use of Saving/Spending Fund Pots
Once again there are apps and bank accounts that can help with this. I use a mixture of banks that have the savings pot feature and a more manual process of a spreadsheet tracking the money in my saving/spending fund pots.
This form of budgeting (also know as the envelope method) involves taking my monthly income and dividing it up into different saving pots, or fund pots (where I will draw money for particular spending). I currently divide my money up as follows:
Month bills Fund
Annual bills Fund
Shopping Fund (food shops, medicine, and household)
Fun Budget Fund (for eating/drinking out, days out, and books)
Clothing Fund
Charity Fund
Gift and Postage Fund
House & Garden Fund
Petrol & Transport Fund
Emergency Savings
Investment Savings
Pension Savings
Maternity Fund - this is a fairly new pot we have started to particularly cover costs if we are lucky enough to have a baby and I will need time off work.
The basic difference for me between a fund and a savings is that the savings are ideally for the longer term/rainy day, whereas the funds have a purpose and will be drawn on when needed. Some of them grow quite slowly, so for example the clothing one may have to build over a few months before I can spend something. The petrol one I put enough in for 1 tank a month, however I may not need a full tank ever month so if that pot looks like it is getting a bit big (say 2-3 tanks of petrol) the excess will go to my Emergency Savings.
Over the years the pots have changed and developed. I didn’t use to have investments, a private pension, or a dedicated charity fund, and when we were buying our house we had that house purchase fund and we also had a wedding fund when we were getting married.
For me, and my husband, the above methods have been really useful to help us make the life decisions we have. From my husband giving up work to pursue his passions, to knowing how much mortgage we could and wanted to take, and to being realistic about the type of wedding we wanted and could afford. Having control over the finances for some can feel restrictive but for us has been quite freeing.
How do you mange your money do you have any tips and tricks that might help others? Do feel free to share this in the comments.
I hope you are all having a wonderful week.
Best Wishes,
M