by Dr Cyra Asher
Budgeting, mindful spending, goal-oriented financial planning. Call it whatever you want, but taking stock of your income and expenses, while maximising the former and minimising the latter, can have an enormous impact on your wellbeing, relationship with money and financial future.
Beware lifestyle creep
Making more money doesn’t necessarily mean more disposable income. Lifestyle creep is the phenomenon where the increase in income is reflected in an increase in expenditure. Also the more you earn, the more you’re taxed. Therefore, what you think you’ve earned isn’t what you take home. By making and sticking to a budget, you can maximise your income and live well within your means. You can maintain a healthy emergency fund, save and invest.
Sticking to a budget doesn’t mean no longer enjoying things or the occasional splurge. You can create sinking funds for hobbies and incorporate non-essential expenses into your budget in a mindful way.
The abundance mindset
The most important thing you can do for yourself is to practise an abundance mindset. Many of us are programmed by marketing to live in a scarcity mindset. We are told we don’t have enough money, there isn’t enough money for everyone and we need the latest gadget to be worthwhile. An abundance mindset is a shift to thinking: “I have enough”, “there is plenty for everyone” and “the way I spend means I don’t waste money”. This shift isn’t easy but is worth the effort.
Break the money taboo
It’s all well and good doing the exercise, completing a spreadsheet and coming up with a plan. However, for a budget to stick. You need to become comfortable with talking about money. Is talking about money a taboo for you, in your relationship or household? Do you or does your partner feel uncomfortable or defensive when money is brought up? This is all too common in society, and it can lead to so much stress and worry.
A few tips to help open up about finances in your relationship or family:
- Talk about your goals and dreams: do you want to buy a car, go on a big holiday or have a big spend in mind? Talk about your goals and discuss how you can work together to afford this.
- Ask hypothetical questions like: “if I didn’t have a job tomorrow, how would I manage?” or “what if we won the lottery? Would we blow it all? Would we invest it?”. Make it fun but also really listen to the responses to understand how you feel about your finances and financial future.
- Save for something special together: create a savings pot and agree to contribute equally towards it. This could be a fund for nights out or dinners, however, it could be something bigger like a holiday or wedding.
- Don’t try to correct or criticise each other’s views. Explore them openly and patiently. Be curious and ask “Why?”. Remember that if it really feels like you’re not being heard or that your goals and money beliefs strongly clash, burying this is not advisable.
- Normalise turning down invitations if you don’t have the disposable income. FOMO is hard but money worries are even harder. Be equally sensitive when your friends and family politely decline invites if they are strapped for cash.
Write it down
Now for the technical part. You need to document all your income and expenses and understand where your money is going. There are free spreadsheets available online, you could make your own or you could use good old pen and paper. Use the past three months to calculate averages for daily expenses and split annual expenses into months for the purposes of analysis.
Here are a few tips:
- You don’t have to be militant with this if you think this will put you off engaging with it.
- You can do a review every two to three months rather than track daily if that suits you.
- There is a wealth of apps available for free which help you track your income and expenses. The fact that we are becoming a more cashless society means we can connect our accounts to these apps and a lot of the tracking can be automated.
- Be honest with yourself and your partner and family.
- Include saving in your tracking to make it a habit.
Pay yourself first
Now that you can see your income and expenses clearly, you need to pay yourself first, ideally automating this. You are number 1 and when I say pay yourself first, I mean be mindful in topping up your emergency fund, put a pre-determined amount in savings accounts (for example a Lifetime ISA) and invest small amounts consistently and regularly.
Here are a few tips:
- Automate your saving by setting up a standing order into your emergency fund and savings accounts.
- Don’t underestimate the power of ‘drip-feeding’ savings and investments. £10 every week is still better than nothing.
- Think carefully about how accessible your money needs to be. Don’t lock too much money away in a Lifetime ISA or Fixed Term Savings Account if you don’t have a healthy emergency fund. Opt for more easy-access savings accounts first.
Pay down your debt
If you have high levels of debt or feel uncomfortable with debt, then take some time to understand the different types of products out there and how they can help you. If one of your aims is to pay down your debt, start with high interest debt first.
- To improve your credit score, use a low credit limit credit card to pay for your weekly shop, then pay it off immediately. This shows you can manage credit well and are reliable.
- If you have a big spend in mind, use a 0% on purchases credit card and pay off equal instalments that cover the 0% term (rather than just paying off the minimum amount). This uses the credit card as a mini-loan. Be strict with yourself, the card is just for this one big purchase- don’t spend more on the card if you cannot afford to pay it off by the end of the 0% term.
- Manage your cash flow by looking at 0% finance options on car leases or furniture purchases.
- Overdrafts, credit cards, flex-payments etc are not “free money” and you need to budget for these in the same way you would your council tax, energy or water bills.
Making money work
As mentioned above, making more money doesn’t always mean feeling like you have enough money. Find ways to maximise your existing income. This part probably takes the most effort as it adds a few extra steps to your usual habits.
- Make your banking products work for you. Switch accounts for cash rewards and cashback on your regular spend.
- Check if you’re getting the best interest rate for the type of account you have.
- Decide whether investing is for you. Start small and stay consistent, it’s more accessible now than ever.
- Use cashback and comparison websites for travel, insurance, phone contracts and more.
- Do not be afraid to switch to a better deal, it’s not uncommon to have a different car insurance provider every year.
- Delay that phone upgrade by a year if you can. Make sure you’re on the best value for money deal for you. You don’t need the latest iPhone. Swap onto a cheaper sim-only deal for a year or two before upgrading.
- Get those discounts. Websites like vouchercodes, NHSdiscounts, BlueLight Card etc can help you make a small saving every time you shop.
tip I can give you is that your budgeting mindset is as individual as you are. There is no correct way, and no one size fits all. Be kind to yourself, make short, medium and long-term goals and keep reviewing your budget as things change and life happens.