Did you know that the average person living in the UK is at least £8,000 in debt (mortgages excluded)?
Managing your finances takes time to understand. Another key thing is acknowledging your financial situation and deciding that it’s time for you to take charge of your money. There are a lot of tried and tested strategies you can learn to help you manage your finances and I’ve managed to summarise this in 7 easy steps.
1. Understanding your expenses
The best way to understand your expenses is to keep track of your receipts - pick a month - you don't have to start at the beginning of a month - start today!!! Another good time to start is the day after you get paid your wages. At the end of a month (or 30 day cycle, depending on when you started), add your receipts up to get a figure. This will help you see the whole picture and give you an idea of where your money goes monthly.
2. Understanding your income
Once you've tracked your monthly expenses in Step 1, deduct it from your monthly income if you end up with a positive figure WELL DONE (but you could probably be saving more :) ) - If you end up with a negative then you need to adjust your expenses. It means you’re living beyond your means and digging yourself deeper into a debt cycle.
3. Create (and stick) to a budget
The key word here is STICK – there is no point creating budget that you cannot stick to. I tell a lot of my clients to be realistic when creating their budget. Doing this will help create a spending plan for your money – allowing you have enough money for your needs rather that wants – it’s also the first step to working your way out of debt.
There is a general 50/30/20 rule when budgeting – 50% of your income goes to your needs, 30% goes to your wants and 20% goes to your savings. This can be adjusted to suit you. For example if you’re someone who is still living with parents/family, why not increase your savings percentage?
There are a lot of budgeting tools online you can access for free. I use an Excel spreadsheet. Apps like You Need A Budget (YNAB) or Mint are really great.
4. Remove unnecessary expenses
This is where it starts to get real for a lot of my clients. You need to sit down and look at the budget you’ve created to remove unnecessary expenses.
That gym membership you’re paying for – when last did you actually go into the gym? Maybe try working out at home using free YouTube videos. Buying Starbucks and Costa coffee daily – try buying coffee beans from a supermarket and leave it at your desk at work! This way you can make your own coffee at your desk daily. Buying breakfast/lunch at work daily – try meal prepping at home.
You also need to check that you’re not overpaying for things like your electricity or insurance – use websites like Compare The Market to see if switching suppliers will save you money.
Doing this means you can save more – making small changes like this will add up to a significant improvement in your finances long term.
5. Understand your credit report
Bad credit markers can stay with you for up to six years. There are a few websites where you can check your credit file for free. My personal favourites are Clear score or Noodle. Make sure all your information is up to date and check for any errors. There is no industry set standard for credit checks – every lender has a different criteria.
6. Consolidate your debt if necessary
Try combining your unsecured debts into one bill rather than pay them individually. The good thing about ClearScore is it gives you a timeline of your credit history. You can see what times you’ve had dips in your report. It also shows you who is more likely to approve your credit application by comparing a range of lenders– depending on how good your credit score is, you might even be lucky enough to have pre-approved offers.
Another top tip is to pay off higher interest loans/credit cards first.
7. Increase your income
If you have any special skills or talents – it may be time for you to start making off those. Remember, no idea is unique but how you execute is key! Find what will make you differ from competitors.
If doing a 9 – 5 is more your thing, it may be time to negotiate a salary with your employer. You can upload your CV on Adzuna and it shows you how much people with the same skills as you are earning.
I hope you all found this motivating and easy enough to follow. Managing your money effectively helps improves quality of life.
So please, start sooner rather than later J
PS - If anyone has any specific questions about financial planning or would like access to a budgeting spreadsheet, please send me an email – firstname.lastname@example.org