Hello everyone! Today I wanted to share with you a little insight into how I manage my finances. Growing up, I feel like there's a real lack of education on how to manage your money, and this means you wind up in a lot of trouble and possible debt if you're not careful. This year I've been making a conscious effort to save more money and spend my money more wisely. One thing is for sure, none of us are made of money, so it's important we use what money we do have sensibly. Don't worry, this money-saving method still lets you indulge in ASOS binges, just in moderation.
Here's how I manage my money:
The 50:20:30 Method
You might be familiar with this budgeting method already, but in case you're not, it's easy to learn and with practice, easy to implement. The 50:20:30 budgeting method allocates 50% of your income to bills, specifically needs & must-haves that would severely impact your life if you didn't pay for them. 20% of your income is distributed into savings and the remaining 30%? That's for fun stuff! This is for wants, yes, your ASOS shop goes here.
Set up:
Executing this budgeting method is easy once you've done a little initial setup. First of all, take your total monthly income and work out your allocated budget for each category.Let's say you earn £1,000 per month.
50% = £500 - That's £500 to spend on your needs.
20% = £200 - That's £200 to put into savings.
30% = £300 - That's £300 to splash on shopping, nights out, and your daily coffee fix.
Analysis:
Now you know how much you should be spending in each category, it's time to find out how much you're actually spending. I found the best way is to open up a spreadsheet and go through your previous bank statements if you need help remembering, and work out what all your monthly outgoings are, paying close attention to needs and wants. Your rent is a need, your Netflix subscription is a want.If a spreadsheet isn't your thing, apps might be more your jam. I've used Yolt and Emma to help me (Emma is my fave!) see quickly my outgoings in categories. They also help you allocate budgets and spot spending trends.Once you've got everything noted down, you can total up your outgoings and see how much you're spending. If you're spending too much on needs, see if there's anything you can cut back on or consider if you could get it cheaper elsewhere (think car insurance, are you getting the best quote? This is the kind of thing to look out for and see if you could be saving a few pennies).
If you've got some extra money in your needs category, congratulations! I'd recommend lumping this in with your savings so you can save some cold hard cash quicker.
When it comes to your wants, this is a prime time to have a good old look at what you're paying out for each month. If you're spending more than the £300 we're using for this example, you need to cut down. Here are some suggestions of where you might be able to cut down:
- ASOS hauls? Consider shopping secondhand
- Takeaways? Take a trip to Aldi, buy the ingredients and make your own
- Uber? If the opportunity to take public transport is there, use it.
- Expensive lunches out with work? Again, buy the ingredients and cook your own/save leftovers from dinner time for lunch the next day.
- Coffee? Buy a reusable cup. Not only will you be helping save the environment, but you'll also be saving some pennies for not using disposable cups.
Action plan:
Now you know how much should be spending and saving each month, and you know how much you're actually spending. This is the time to take stock of your situation and bring out the action plan. Here's what you need to do next time payday swings around.- Take your monthly income and divide into three categories, 50% for needs, 20% for savings, and 30% for wants.
- Transfer 20% into your savings account immediately. If you do this immediately you won't feel like you're missing out on the money.
- Pay close attention to your spending throughout the month to ensure you're not overspending in your wants category - it's important your prioritise your needs first. That ASOS order can wait if it needs to.
- When your next payday rolls around, transfer any remaining money straight into your savings and start the whole process again!
- Bingo!
Tools & tips to help along the way:
From my experience, I know that it can be super hard (and a lot of effort) keeping on top of your finances every day. To combat this I've taken a number of steps:- Open another bank account - I only had my current account and my savings account before really knuckling down a few months ago. Since then I've opened a second bank account with Starling Bank where I deposit my money allocated for my wants (30%). This means it's easy to see how much I've left to spend without worrying too much, and I know that it's not going to infringe on my money allocated to needs. Plus, once it's gone, it's gone. It's not as easy to transfer from my savings.
- Explore different savings accounts - with my bank the interest I was earning on my savings was very, very low. Conveniently when I opened an account with Starling, they allow you to deposit money into goal post (think virtual piggy banks) so you're allocating money specifically to a holiday, or a new car, or even just a pot for a rainy day. This has helped me immensely.
- Look at apps that will notify you about your spending with minimal effort. I've tried both Yolt and Emma, both of which track all your accounts and allow you to set budget. I've stuck with Emma as I prefer the interface, and have set up budgets within my wants category for shopping, eating out, and entertainment. You can customise it how you like.
- Sign up to loyalty cards (free ones! like Nectar card, Boots loyalty card, Superdrug Beauty card) and use them! Make sure whenever you're shopping you make sure of them to grab any discounts/earn points to take some pennies off.
That should be enough to get you started! The thing to remember is that this is just a guide and if you do overspend anywhere, don't be too hard on yourself about it. It can take a bit of getting used to and everyone has unexpected purchases pop up. Don't fret, just save wherever you can and try to be savvy with where you shop!
