With the run-up to Christmas well and truly on (even if many of us are in denial), it can get us planning, budgeting, and thinking about all that we have to do to really improve our finances. After all, there are only a couple of paydays until Christmas (if you don’t get one just a few days before). Unfortunately, though, it isn’t like there is a magic wand to wave and all of our finances will be sorted out. There are plenty of things that we can be doing to cut our necessary spend, but really the focus needs to be cutting down or eliminating the unnecessary spend.
With this and Christmas in mind, you might have seen a video from Martin Lewis doing the rounds on Facebook. With nearly seven million views of the video, you should hopefully know what I’m talking about. The video talks about unnecessary spend at Christmas, and how buying pointless gifts for others is not only wasting our money, but is forcing them to do the same, even if they can’t afford it, as there is a bit of an unwritten rule about giving a gift back to someone that has already give one to you. He talks about having an unnecessary present pact with friends or relatives for the festive season so that you’ll all be much more financially sound. What are your thoughts on this? It makes a lot of sense, and although won’t really make sense for the kids, it makes a lot of sense for adults.
Simply put, we need to stop spending. That, of course, is easier said than done. Because if you are overspending, even by a small amount, it can have a big follow-on impact. When something is unplanned and not budgeted for, and going on something like a credit card, it can create a massive spiral of debt. You may borrow more to pay back what you owe, but then you owe even more and haven’t got the money to pay for it all. It can be a massive downward spiral and it can have an impact on all aspects of your life.
So the first thing that you need to do to figure out where you are with your finances as we come towards the end of the year, is to work out a budget to see where you are spending your money, as well as where the money is being wasted. So look at the household income by checking bank balances. Then figure out all of your necessary spends, like your energy bill, mortgage or rent, and things like commuting costs. After that, you will be left with the rest of the money that needs to be assigned to different things, like the food shop, savings, and other items. If you have barely anything left, then something has got to give.
Look through bank statements to see where you waste money. Because something small at the time, like a Starbucks coffee each morning on the way to work isn’t that big of a deal. But when it is combined over the course of a year, that is a chunk of money that is just being wasted on something you don’t need (or something that can be much cheaper to make at home). So in order to spend less, here are some things that you could be doing:
Going through and budgeting, as mentioned, is one of the first steps to figuring out where you are financially. But you need to be precise and clinical when it comes to looking at your budget. Don’t just generalise with the things you are looking at; be specific. Doing an overview of the year can also be a good idea as there can be some one-off costs like an MOT or birthdays that aren’t going to be each month. From there, you will have an idea of what you have got and what you are spending it on too. So from there, you need to make a plan to stick to your budget. What works for you will be different for everyone, but the ‘piggy banking’ way of doing this is using various different bank accounts to help to control your cash flow.
What is necessary to one person doesn’t mean that it will be necessary to another person, but at the end of the day, you won’t have the money each month to do anything and everything that you’ve ever wanted to do (unless you become a billionaire where you earn more in interest than you would ever spend). So you do need to decide what is a priority for you and your family each month. There will be things that are a no-brainer, like food, transport, and household bills. But what about things like birthdays or holidays; are they a big deal to you? If so, that is fine, you will just need to make cuts elsewhere so that you can afford it all. If those things aren’t as much of a big deal to you, then it is a good idea to save the money or spend it in the areas that are more important to you.
Reduce Necessary Spend
There are so many ways to cut down the cost of the things that you need to pay for, like groceries and household bills. For instance, getting into couponing or meal planning can be great ways to cut the cost of your grocery bill. Buying foods in bulk can be a good idea too. Then there are things like your energy bills. We all need gas and electricity in our modern homes. But we don’t want to pay more than we really need to, right? The same goes for our broadband bill or mobile phone bill. Which is why looking at somewhere like Cable.co.uk’s cheap broadband page could be a good idea so that you can compare prices for broadband to make sure that you are paying what you can afford, as well as for the deal that you use.
If childcare is a massive cost, then in most cases it is going to be a necessary one. However, you can pay less for it, or rather be more tax-efficient when you pay for it if you use things like childcare vouchers through your employer.
But for the unnecessary spend, there are a few rules to live by that are going to help you to cut your spend, and even stop you spending for no reason. Here are a few of them to help; are there any more than you would add to the list?
- Sleep on it. From purchases big or small, sleeping on it (which basically means taking time out to think about it), can be a really good thing. When you’re not in the shop or in the mode of buying, you can see things a little clearer. If you don’t actually need it or can’t actually afford it, then you can walk away from the purchase, rather than buying it and regretting it later.
- Work out how long it will take you to earn it. For a lot of people, much like dieters that want to lose weight do, they will work out how long it will take to burn off the burger or cake at the gym. The same thing can be applied to impulse buying. If you work out how long it would take you to pay for something through your wages, then it does help you to see the value of it. If it is going to a long time, then is it going to worth all of those hours to you?
- Focus on the things you’re saving for. If you want to save money for a family holiday or a mortgage deposit, for example (or perhaps even ‘saving’ to pay off debt), you can stop impulse buying by comparing the two. A new pair of shoes could cost you £100, for example. That could be one flight to Rome for your anniversary, for example, or £100 extra that you could overpay off your credit card that month. This can really help to put things into perspective.
- Use only cash. If you are sticking to a budget, then it can be a good idea to take cash out for the things that you need. Going to the supermarket, for instance? Plan out your meals, and only take a certain amount of cash out with you; leave the cards at home. Then you are forced to stick to a budget, and you can’t be tempted by offers on things that you don’t need or get distracted by the kids in the toy aisle.
When you make a plan to help you to save money, then it really will make a difference. Being proactive and cutting the spend that you don’t need, will help you to take control of your finances, and spend it or save it where you want to, rather than with debt, where you have to.