This article is the first in a series about managing finances for beginners and will deal with setting up a budget. Next time, we will advise on the best ways to get rid of debt.
The ability to manage your finances is a skill we all need, yet statistics show that many people in the UK are struggling with debt.
The numbers speak for themselves:
(Statistics are from http://themoneycharity.org.uk/money-statistics/ )
It sounds scary, but getting into an unmanageable debt situation and becoming one of these statistics is avoidable if you manage your finances carefully – and it’s not as complicated as you may think.
If you’re struggling with debt, keeping on top of your bills, have recently taken out an educational loan, or your personal circumstances have changed, consider these beginner’s tips on managing your finances.
The initial effort of setting up a daily, monthly and yearly budget really does pay off. It helps to ensure you are less likely to end up with debt or get caught out by unexpected costs. Having a budget also makes it easier to do things like save money, get a good credit rating or be accepted for a mortgage or loan.
The first step is to figure out how much you spend on things like:
It’s not enough to just take a guess – look at your bank statements and write down your outgoing payments for the last month. Here are a few useful tools you could use to do this:
Once you know where all your money is going each month, you can work out how you can reduce your spending. Here are some ideas that may seem small, but combined can make a huge difference to how much money you’ve got left over at the end of the month.
There are many more ways you can reduce your spending that may be more relevant to you. Try keeping a spending diary, or assessing your bank statements to see where your money is going. Often it’s the smaller hidden costs like impulse-buying food or clothes, or nights out, a few pounds here and there that add up to more than you expect.
Look at your income and decide how much you can really afford to spend on each item each month. Start with your fixed expenses such as household bills, car payments, travel, credit card repayments. These are the things you absolutely have to pay which cost the same each month, so make them the number one priority.
Next list all the variable but still important expenses like groceries, your phone contract, travel, etc. Try to reduce the budget for these as much as possible (see our suggestions above). If your goal is to save money each month, take this amount off your budget too.
Whatever you are left with can now be dealt out between your non-essential expenses – these could be takeaway coffees, meals out, alcohol, or anything else. But remember, you should aim to still have money left over at the end of the month.
Once you’ve set your budget – stick to it! Continue to keep a regular record of all of your spending so if you start going over budget, you can rein yourself in.
The aim of staying on top of your basic budget is so you can get some savings behind you. This makes it possible to afford bigger things like:
– Emergencies such as your car breaking down, sudden loss of income or your house flooding.
– Family events like weddings.
– Going back to college or university to study a new course.
Look out for our next beginner’s guide to finance, where you’ll learn to reduce your debt.