Wednesday, 3 December 2014

Sharing my top tips on managing my household budget

My current beautiful home

My husband and I bought our first house back in 1997 and I have to be honest and say that he taught me everything I know about managing a tight household budget. I was always a 'live now and forget tomorrow' kind of spender and whilst that was lots of fun it often led me back to my parents and getting bailed out whilst I was at University. Of course once you are in that spending mentality it is pretty hard to break it and it was only because my husband said we would not combine our finances until I showed him I could be trusted with money that I started to work hard to change my ways.


I'm very lucky that dh was sensible as he had £3000 in savings which we were able to use for our first house deposit. In 1997 that got us on the ladder buying a one bedroom house for the mere cost of £57,000 in Surrey. You would not find the same house for any less than £190,000 now and isn't that a scary difference? The deposit you would need nowadays is £9500 if you wanted a 95% mortgage. With house prices being so much higher nowadays it is even more important to get the best deals on your spending.

My husband and I have now been together twenty years and I'm pleased to say that in relation to my attitude to spending I have changed immensely.  I still like to enjoy life and have the nice things, I just choose to cut back on boring and unnecessary stuff and find the bargains.  I'll share with you the things I do to make sure we are not spending money unnecessarily and even with a modest income we manage to put some money away each month.

Work out your income and expenditure
The first thing to do when you want to get your finances in some kind of order is to list all your income and expenditure and to do it really honestly. If you estimate that you will spend £60 a week on your food shopping when the reality is you spend £80 or £100 then you are just kidding yourself and it will be of no help. I personally use an Excel spreadsheet to do this but it could just as easily be written on a piece of paper. On one side list money coming in and on the other money going out. I track mine by the month as that is how the pay comes in to our family but it might be better to do it weekly or fortnightly if that is how you are paid. It does not matter which frequency you choose as long as it works for your situation.

Realistically some people have no idea what they are spending so if that is the case it is important to track all your spending for a month. Keep all the receipts and add up the spending in the different areas - things like food shopping, toiletries, clothes and make-up, nights out/ entertainment, sports, travel costs, charitable donations, children's expenses - use whatever labels are pertinent to your life and spending habits. Again I'd use an Excel spreadhseet for this, just starting a new tab to track my spending. Beware this can be a real eye opener but remember knowledge is power and once you see what you are spending you can then start to change it and claw back some money.

As well as your monthly expenditure, it is also important to think about those costs that arise from time to time, like insurance, birthdays and Christmas, car tax/service/ MOT, holidays and maybe school or childcare fees. Add up these ad-hoc costs and divide them by 12 (or whatever frequency you are working to) and add that amount to your expenditure.

Look at where savings can be made
Once you know the amount of money you have coming in and the amount going out each month you can now start to see clearly if your spending habits are working for you.  If the expenditure column is exceeding the income then you have an issue that needs addressing quickly as this will start to cost you money in bank overdraft fees or credit card interest.

Hopefully you either have some surplus income or your money in matches your money out. I'll share with you a few ways I've found to claw back some money very quickly -
  • Check the cost of your insurance plans. Buildings, contents, car, holiday, medical and any other insurance that you have. It is all too easy to stay with the same company and to not notice that your policy cost has risen, it is not the case anymore than loyalty leads to discounts. Use an easy web comparison site like Confused.com or Gocompare.com. There are lots of them out there and I always refer to Martin Lewis' site Money Saving Expert to see which companies I can be trusting most.
  • Compare the cost of utility companies to see of your electric or gas could be cheaper elsewhere. Previously I've used USwitch.com and found them to be reliable and I've saved £100's in a year by changing over and yes there is a bit of paperwork but generally for the saving you make I think it is well worth it.
  • Evaluate whether you need the TV package you have. if you have Sky or cable TV chances are you are paying a hefty amount each month. There could be something better out there for you. Look at combined deals for phone rental, Internet and TV and again do not assume that staying with the one company will pay off, very often it does not. You might even find that you are happy to cancel your £33 a month Sky subscription and just opt into something like Netflix with a much lower cost of £5.99 a month.
  • Mobile phones are another place that money can really be saved. If you like your provider then call and ask them for an assessment if you are on the right plan for your usage.  They have to be honest with you and you might be astounded to find you could be paying just £10 a month if you are a low user who does not want the latest handset. Alternatively consider moving to pay-as-you-go.
There are so many ways you can save money and if you get the bug and what to find more then just google 'how can I save money' and so many great resources come up.

Pay your credit card off every month
Never be tempted to use your credit card as a temporary loan. It is a very slippery slope to leave money owing on your credit card and to start paying the interest each month. You'd be surprised how quick it adds up. Personally in our family we use our credit card to pay for most things and this is because we have a card which has a good loyalty scheme attached to it. For every pound we spend we get points which then become vouchers to spend on meals out, holidays and the like and as we pay off our balance every month these nice extras cost us nothing.

Instead of allowing our credit card to roll over we have a £1000 agreed overdraft facility with our bank and this means we do not pay any fee if we need to dip into this £1000. It is so important to arrange an overdraft if you think you might need it. In truth we dip into ours about once a year and it costs us under £1 in interest but if we went into the red and did not have the facility it could cost us up to £80 a month, that is a big difference!

Set up automatic payments
Once you have added up your expenditure and allocated what can be paid online it is then sensible to set up direct debits to pay those things off automatically, that way no bills get forgetten and thus no unecessary charges incurred.

I know a few of my friends who have separate bank accounts for their bills to be paid out of and I think this is a good idea. You can just have a standing order transferring a set amount of money from your current account (as soon after pay day as possible) to this bills account and make sure you can only access it online and do not have any cards for the account. That way your day to day spending has to come out of your current account and cannot eat into your bills money which has been set aside.

Start Saving as early as you can
Hopefully once you have worked out your budget and taken some money saving measures you will be left with some money at the end of each month and it is really important to start saving as soon as you can. You probably won't make masses of money in interest but at least you are saving for the day when you need a house deposit or to make a large purchase. If you cut out your take-away coffee that you have 5 days a week on the way to work you could already be saving over £50 a month and it will all start adding up. Then if you are anything like me once you see the savings you will want more and more and it becomes easier to cut back and make better spending decisions, like buying basics range kidney beans rather than premium ones or to walk home rather than take a taxi.

If you are thinking of saving up for a home of your own but aren’t sure if it will be cheaper than renting, then do take a look at TSB’s mortgage repayment calculator to see how much your repayments would be.

All the best, I hope you find planning your budget an easy and painless job and that your savings start to add up. Mich x


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