Leaving home is a massive step for anyone. Leaving it without a clear idea on how to manage your money, though, is frightening in the extreme. With no grown-ups around to do the little things, it can quickly become overwhelming.
And it’s not just those first months away from home that can be hard. Budgeting when you first get a family, or when you find yourself unexpectedly between jobs, or even just when you first leave school and are looking to save a bit before moving out – it’s all hard!
Let’s help make it easier.
Money management is a skill. It’s not something you are born with, and some people are better at it than others, but everyone can learn and benefit.
The first step is simple: don’t be frightened.
Worrying about finances is one of the largest problems for mental health in the UK today and being frightened of the consequences of having little or no money can make even the strongest of us break into tears. Remember that there is always an answer, and that money is not something to be frightened of.
There is nothing more important than communication when managing money, budgets and debts. If you hide things, keep anything secret or stick your head in the sand and hope it’ll all go away then things will go wrong. Be open with the people you are financially tied to, be honest with your creditors and above all, tell the right people as soon as something starts to become difficult.
It’s amazing how much help you will get if you just ask! Even the most frightening institution (like HMRC) will listen to you if you have difficulties and they will do what they can to arrange a payment plan to suit you. At the end of the day, they want their money back and they’re not going to get it if you slide into bankruptcy or try to run away.
Remember the golden rule: communicate.
You cannot possibly try to manage your money if you do not know what money you have and how much you spend. Whether you use one of the money management tools out there – on apps, as part of your banking etc., or just simply have a notebook where you note down regular payments, you need to know how much money you have.
Write down:
That’s the first step. As soon as you do this you should have an idea of your left over (spare) money after bills. Don’t put in things like food or clothes; they come later. This first stage is about understanding the automatic income and outcome that will happen if you fall asleep for a month or two and didn’t touch your bank account.
You’ve just taken the first steps to controlling your finances with a monthly budget.
If your outgoings are greater than your income (or so close as to make you worry), then you only have two choices:
This isn’t rocket science! Though this obvious conclusion is of no surprise to anyone, it is incredible the number of people who have outgoings that exceed their income. If you can’t raise your income (and who hasn’t tried already), then you are going to have to cut back on outgoings.
You believe it is all essential. It isn’t.
You believe it is all set in stone. It isn’t.
The first thing to do at this stage is to see what can be removed or cut back. Remember, nothing is as essential as you think. Here are some standard regular bills that can be easily cut back on:
The next stage is to see what more significant outgoings can be renegotiated, reassessed and generally made smaller. This group is typically things that you might need to keep but may be able to opt for a lesser version of:
This trick could save you tens of pounds in bounced direct debit charges and other similar fees. Take a look at the dates of your direct debits and see if you can rearrange them to better suit your income dates.
Often over time, things may have become a little bit skewed, like a mobile phone payment that always comes out two days before payday and has a knock-on effect of sometimes bouncing and causing charges, or two bills which come out within 24 hours of each other than at the same time eat all the money for that week but would be easy to handle if split apart.
Managing cashflow is as important as managing the actual numbers and will not only save you money, but also helps the weeks feel less stressful, without big bursts of difficult outgoings one week followed by a ‘good week’ two weeks later.
We all spend too much money - it’s a fact! You pop in the petrol station and get a drink (and some gum, and that bar of chocolate), or you go to the supermarket for a loaf of bread and some milk and come out with a nice top that was on sale, a magazine and some shampoo but forget the bread.
Again, the trick here is to write it down. If you are on a tight budget, then getting things at notice is a no-no. A single misstep which leads to a takeaway pizza rather than the sausages you planned can throw havoc with your finances, especially when you throw the sausages away two days later because you forgot to cook them and now, they’re off.
Plan your meals, work out your shopping list and stick to it. Other monthly expenses you should track and add up include:
Like you did with the regular bills, add this all up and see if the spare money (income minus bills) has enough in it to cover.
And just like the regular bills, if the money isn’t there to pay for these, then something has to go. Lose the entertainment first, try to stretch clothing next, or go back to the earlier list and do what you can to free up money there.
Do not pass on to the next section until your outgoings no longer exceed your income.
Of course, this is all very good in theory, but once you get into the real world, how do you manage the budget? Is willpower enough?
There are a few methods that can help:
This works for many people. By assigning yourself points or a small reward if you manage to keep to your budget each week, you make the whole difficult task a little more fun, and over time it can be addictively entertaining.
Promise yourself something big if you stick to the budget for six months – a holiday somewhere you’ve always wanted to go, or a new television. It shouldn’t be a ridiculous goal that’s out of reach, but something genuinely achievable.
Keep an eye on your budget plan all the time. Check it each morning and each evening. By keeping it in mind you can’t ‘accidentally forget’.
Communicate! Having a spouse who is helping with your budget, or a friend willing to do the same thing for themselves, can help motivate you in many ways. Even just calling a parent every few days and letting them know you are on target can be a great benefit.
Look to part two in this series to learn how much of your income should go to bills, how to save money on a tight budget, how to make your money work for you and more. We’ll even be taking a look at some of the best budgeting apps available in the UK a little later on.
Good luck! For more budgeting and financial advice, take a look at our extensive library of articles on the subject.