It seems it’s the season for thinking about your money: 6 Music is running a few days of broadcasts with the theme “Wonder Wallet” and there’s a whole load of new articles by Alvin Hall, whose book on money management has really helped me sort out my finances. I made the effort to get organised with my money about five years ago now, and I’m so glad I did. Recently the things I’ve learned have proved useful to some of my friends, who are now also sorting out their monies. With that in mind I thought I’d write here about the things I’ve learned – because it’s actually not that difficult to get control of your money, and it’s also quite fun. It might be lengthy so bear with me.
I think I first got interested in this sort of thing because I watched the Alvin Hall series on the BBC called Your Money or Your Life, where he took someone with financial difficulties and helped them get through it. I then bought the book, and if you’re able to get hold of a copy I really recommend it.
One of the steps he often recommended to people on the TV show was to keep a record of everything they spent for a month. I got myself a tiny notebook so that I could always carry it with me, and set about recording every single thing I spent money on. Immediately that made me modify my behaviour: I spent less, and I gave more thought to what I was spending money on – sometimes because the thought of having to write down “£0.60, chocolate” made me feel embarrassed (although I have always kept my notebook private and so there was no real need for me to feel this sense of shame!). Within a month I could see what I was spending on and how much – and that made it easy for me to see that the amounts I was spending on certain parts of my life did not quite match up to what my priorities were. For example, I was spending more than I should have been on things like eating out and going for drinks (which I enjoy but can do without) whereas I could have been putting more of that money towards travelling and holidays (which I love).
Once I knew what I was spending, it was easier to draw up a budget. I have a fixed income, and so the way I did this was to work out exactly what comes in each month, subtract all the unavoidable expenses (rent/mortgage, groceries, other bills) and then come up with a plan to make the most of the rest of the money. If your income varies each month you can do this slightly differently – working out all the necessary expenses so that you know what you need each month, and then coming up with a plan for where the money that exceeds this amount will go. For me, I put a set amount each month into a joint account with the boy, and so does he – this covers all our bills, groceries, household things, and so on. I then put another amount into my savings account, a smaller amount into another savings account which I set up that is exclusively for holiday money, a little more pays my dance class fees which are paid every month, a little to the Red Cross, and the rest to my current account for life in general (crafty things, clothes, bus fares, meals out, gifts for people, and so on). All of the payments to savings accounts etc are set up to automatically leave my account the day after I get paid – this is one of the key things Alvin says to do – “pay yourself first.”
When friends have asked me for advice on this matter we’ve talked about how what works for me will almost certainly need altering for them – in some cases they have debts they want to pay off (as I did when I started doing this), in others their priorities are very different from mine (maybe because they have children and want to save for their future, or because they want to be out every night and can live without holidays). The basic thing you’re trying to ensure is that you don’t spend more than you have to on things that you’re not so bothered about.
I have continued writing down every penny I spend to this day, and I find it a helpful record – plus it gives me the chance to buy myself little and pretty notebooks from Paperchase. I also find that it is an effective way of cutting back your overall spending, almost by magic.
I’m really happy with the way my savings account system works – I have an account with ING Direct (when I opened it theirs was one of the highest interest rates – it’s not now, so you should shop around), and I like it because you can set up named sub-accounts – so this is where I keep my holiday money. For a while I had another one for money to pay for my driving lessons (these cost a fortune – my driving instructor recently went on a three week holiday to Australia, and it’s safe to say I helped pay for that), and now I’ve changed the name of that one to “vet’s bills” because we are planning to get a cat. (That’s another suggestion I have: rather than take out something like pet insurance, I’m planning to pay a set amount each month into this account to cover for unexpected vet bills, because you just know that when a visit to the vet is needed, it’s going to be expensive. And this way if I don’t need to pay such a bill, I will still have the money because I won’t have paid it to an insurance company.)
When it comes to saving, the key thing I’ve learned is to just do it – however small an amount you can afford each month, save it. Once you develop a habit for saving, you can make a gradual increase to the amount you save, and you’ll certainly be satisfied to know that you are putting money aside for the future (or for whatever little luxury you may wish to have). One way you can save is to have a personal tax on things – say 10%. So if you suddenly find £10 in your coat pocket, put 10% of that unexpected windfall in your savings account/piggy bank. The same goes for any money people give you on your birthday.
If you’re feeling particularly creative you can make one of those charts (just like on Blue Peter!) to track your progress towards a certain goal, colouring in a little more each time you tick off another milestone. And you can give yourself a little (inexpensive!) treat when you reach that goal.