We talk a lot about managing your borrowing here at ilumoni, but we know that managing existing debt is only one part of the puzzle when it comes to personal finance. Learning how to budget and becoming aware of your spending habits, or what drives you to spend, is just as important to help avoid problems with debt. That’s why we’ve enlisted the help of Financial and Money Mindset Coach, Laura Ann Moore, to get her top tips on doing just that.
Budgeting can feel overwhelming at times, especially if you have a lot of outgoings or your pay is irregular, either in timing or amount. But, without a budget, it’s very easy to overspend.
Laura suggests beginning with a really simple calculation of how much you have coming in within your chosen timeframe (weekly, fortnightly or monthly) and then subtracting all your outgoings within that period. This will give you a baseline of how much you’ll have left to either spend or save.
Remember to include in your list of outgoings:
Rent or mortgage payments
Utility bills, or other ‘high priority debts’, such as Council Tax, Gas, Electric and Water
Home running costs such as internet, phone bills, contents insurance or your TV licence
The amount you typically spend on food and other essentials
Minimum monthly repayments for any loans, credit cards or other credit agreements
Car running costs such as fuel or insurance payments
Optional subscriptions such as Netflix, Spotify and Sky TV
You may also have other outgoings you need to include - if you get stuck and can’t remember them all, try going through your bank statements from the past 6 months. This will also help you spot any ‘one-off’ costs or irregular direct debits.
Now you have a full list of your outgoings, consider also where you may be spending on things you no longer need. You could also use this time to go through any bills and try to find a better deal if you’re no longer in a contract. With the cost of living rising at the moment, reducing your outgoings wherever you possibly can give you more money to spend on other things, however you need.
By making conscious decisions about where your money will go between paydays, you’re putting yourself back in the driving seat when it comes to your finances.
Laura is a big believer in mindful money management and her work as a coach addresses the emotional drivers behind spending. To begin getting a handle on your spending, she suggests making a note of the things you buy throughout the month (or your payday cycle) - this is called money tracking.
When you’re spending money, ask yourself, “Am I buying this to change how I’m feeling right now? Could I find another way to change how I’m feeling (e.g. bored, stressed, upset) without spending money?
Once you begin to notice the emotional triggers behind your spending, or the times you’re most likely to make a spontaneous purchase, you can begin to change your behaviour and improve your relationship with money as a result.
Another way to avoid unnecessary spending or impulse purchases is to ask yourself whether the purchase aligns with your financial goals (more on how to set financial goals below). Will this purchase, for example, take you closer to or further away from those goals?
Obviously, there are lots of times when spending is out of our control, however, these tips for managing your spending should hopefully help you curb any bad habits and stay in control of the spending you can influence.
Now that you have your budget together and you’re taking control of your spending, it’s time to look at how you can, hopefully, save better.
“Understanding what you’re heading towards can be really motivating and can help you manage your spending better”, says Laura. So, ask yourself, what are you working towards? Do you want to buy a house? A new car? Or even just build up a rainy day fund?
Goals don’t need to have an exact figure attached to them if you don’t know yet, but having a ‘thing’ in mind will help you decide whether a purchase this week is really necessary, or whether that money could help you achieve your goal faster.
Consider, too, what your short, medium and long term goals are. Buying a house is no small task these days and, while it might be tempting to lock all your savings away for that purpose, to really stay motivated it can be useful to have smaller achievements and milestones along the way. For example, you might want to save for a house in the next 5-10 years, but enjoy a few holidays in that time too.
With your goals at hand, take a look at your leftover budget after your outgoings. How much of that do you need to live on? How much can you, or do you want to, save each time you’re paid? Moving this amount into another account as soon as you’re paid can be a good way to make sure you don’t dip into it.
You could also consider saving into separate pots, based on your goals. Lots of people use Monzo’s saving pots for this reason, as they even let you add an image to help visualise the goal, but you can use any regular current or savings account - just make sure you’re not being charged for the account.
You could also try dividing your savings into amounts for each of those goals. For example, if you want to save for a rainy day fund long term and a weekend away in 6 months' time, you could put 30% of your total possible savings to the weekend and the rest to the other.
Lastly (and this one is from us!), if you’re trying to save money and have existing debt, it’s a good idea to review how you’re managing your debt as many of us pay more in interest than we need to. Better debt management, such as changing your repayments or restructuring your debt could help you free up cash in the short term or save money over a longer period which can then be put towards those financial goals.
If you’ve found these tips helpful, make sure you follow Laura on Instagram for more mindful money ideas and download the ilumoni app to see if you could find smarter ways to borrow or repay, to help clear debts faster.
Concerned about your finances or struggling with debt? The organisations on our Debt Helplines page can offer you additional support or advice.
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