If you’re looking to finally get on top of your finances this year, this series of blog posts will help you kick things off.
Over the next few weeks I’ll be giving you tips on managing your debts, your savings and your spending – all essential to being in control of your finances.
But first, and most importantly, you need to do a little bit of prep. Think of it a bit like a warm-up before doing exercise.
At its most basic that means following a few simple steps to work the real state of your money, and then setting up some low hassle way to keep track.
You need to do this before anything else as it’ll make sure you focus in the right place. Say your goal for the year is to save more. That’s great, and I’ll show you ways to help in a few weeks. But it might be your energy would be better spent elsewhere.
Here’s what you need to do:
1. Make some time
If you’re serious about sorting things out, then set aside a couple of hours this week. It’s never going to be as enticing as other options, but it will be worth it.
Grab a beer or glass of wine, out some music on, gather your bills and statements and get your head down.
2. Work out your bottom line
In an ideal world you’ll set up a budget. For me that means using a spreadsheet to put all my income and spending together in one place. It’s actually really simple and it’ll give you the most accurate indicator of where any problems might be.
Just list out what you’re spending every month in one column and everything coming into your account in another column. Everything. Then subtract the spending from your income to see whether you’re spending within or outside your means. It’s well worth doing it.
There are also online tools like the Money Advice Service budget planner that can help, or even workbooks and diaries you can buy for this. Go for whatever works best for you.
3. Audit your paperwork
Simply going through all your bills and bank statements will be a big help. First look for the following:
- Anything you pay for that you don’t really use or need
- Old subscriptions or bills you thought you’d cancelled but are still paying for
- Expenses that are higher than you expect
Anything you spot in one of these categories is where you can quickly cut back through cancelling or spending less.
While you’re at it, make a note of all of these figures and dates. I’ll come back to what to do with them over the next few weeks.
- Bills where you’re out of contract, and the end dates for those where you are still in contract
- How much you’re paying on loans, overdrafts, credit cards or other debts
- Fees or charges from your bank
- How much interest you’re getting for your savings
- Which retailers you use more than others
4. Track your spending
You can drill even deeper into where your money goes if you start a spending diary. I did this a few years ago, going into a very forensic amount of detail, but you don’t need to go that far. All you need to do is write down everything you spend money on for a few weeks, perhaps a month.
The idea is you’ll be able to see how even the small things quickly add up. It’s a real eye-opener, and it’s another way to identify the areas where you probably are overspending.
5. Make it easier to manage your money
Now you’ve got a sense of where your money is going, don’t lose track. I update the basics on my spreadsheet every month, and there are some smart apps such as Yolt which allow you to see all your bank and credit card balances, even from different banks, on the same screen.
It’s also worth automating as much of your regular spending as you can. This means direct debits for bills and credit cards, and standing orders for savings. If you can set the dates for these so they are just after payday it means the money goes when you have it, and reduces how much you’ve got left to spend on the non-essentials.
Next week I’ll be writing about clearing or better managing your debts.