Managing your money doesn’t have to be rocket science, says Matt Rawlings.
With the recent news that UK education chiefs will be taking steps to ensure the next generation are much better prepared to manage their personal finances – through plans to extend the National Curriculum to include lessons geared towards financial wellbeing – schoolchildren will be ideally placed for financial independence. Budgeting income and expenditure, understanding financial risk and tips for building a healthier financial future could all feature.
With a reported 34 million adults displaying a poor understanding of tax, savings and utilities, this new approach could help plug gaps in our financial intelligence as a nation. Here are just a few ways you can get a better hold of your finances and build towards a bigger bank balance.
Study your spending history
Whether you are looking to take financial control for yourself or for the whole family with the help of your partner, start by fixing a date when you can sit down and review your spending habits. The first step is to collect together maybe three months of bank, building society and/or credit card statements, either as paper copies or electronic files downloaded directly from your Internet banking account. To see exactly where your money goes, you will need to breakdown outgoings into several distinct categories including: Rent/Mortgage, household and utility bills, grocery shopping, transport costs/car and childcare.
Draw up a budget
Next, put your spending history to work. All of the valuable information you gathered during your personal finance audit will form your new household budget. Decide whether a weekly or monthly budget will work best for you. This will depend when funds regularly come in from channels such as an employer, your pension or from your universal credits allowance.
Using your spending history budget to decide how much of your income must be allocated to each category every month. Use an online budget calculator or one of the many banking apps to sum things up clearly. Any income that is spare at the end of these calculations can be channelled straight into any existing savings funds or to start building or boosting an emergency fund. Unexpected expenses happen, so if possible, factor in as much contingency as you can afford.
Stick to that budget
Knowledge is power when it comes to staying in financial control. Creating an audit and plotting a budget is an eye-opening exercise. You suddenly have a clear view of various money wasters, such as an unused gym membership. The key is now keeping your budget in plain sight. Make a point of reviewing it before you visit the shops, to avoid making any rash purchases you can’t afford.
Keeping track of your spending becomes less of a chore over time, once you find a method that works for you. Noting down daily purchases in your diary, keeping receipts or using a spending app on your mobile phone are just some ways to tackle this job and wrestle back control of your financial health. If you are visually motivated, why not use photographs or Pinterest boards to remind yourself of your financial goals. Reward yourself by spending money on things you’ve saved up for or celebrating your progress towards becoming debt free with an affordable treat now and again.