MoneyMagpie’s top tip to keep out of debt is to live within your means. Genius, huh? The problem is, most people have no idea what’s going into their bank account each month, and even less about what’s flowing out.
If you’re in debt it’s important that you find out where the money is going and stem the flow. The easiest way to find out is to write it down. Seems simple? That’s because it is.
How to keep a spending diary
All you need to do is get a small notebook and a pen and make sure you have it with you wherever you go. Or, if this seems too archaic, you can always use your smartphone to record everything instead.
Whichever you use, you need to make sure you take note of every single thing you spend money on throughout the whole day, from your morning paper to your late-night novel. Include bills, food, drink, travel, entertainment and any other luxuries. Try to keep it up for at least two weeks to get a good picture of your spending habits.
Don’t forget about that coffee you picked up on your way to work or the sneaky Friday takeaway. It’s these things that can really stack up and eat away at your income. And seeing that on a page is a real eye-opener. Take this example:
Amanda earns £1,200 a month after tax. She pays £400 in rent, £70 on household bills, and £50 on groceries each month. So after those essentials she’s left with £680 each month, and somehow it just disappears and she can’t find the money to pay off her credit card. Let’s see her daily spending though.
Weekly travel card – £25
Coffee and cigarettes on the way to work – £9
Lunch at Itsu – £7.50
Copy of Grazia – £1.95
Post-work drinks – £15
Takeaway dinner – £7
Lottery ticket – £5
Total – £70.45
Coffee on the way to work – £2.50
Lunch at Pret – £5
Post-work shopping in Topshop – £30
Ticket for a one-day festival in London – £40
Total – £77.50
That’s a perfect example of just how easy it is to spend £150 (ok, £147.95 to be exact) in just two days. And if you find that your spending diary produces some similarly terrifying results, then now is the time to take action!
You can cut those costs without having to give up everything you enjoy – but remember if you have debts to pay then you have to prioritise them. That might mean cutting back for a while, but it’s a necessary evil.
How to fix the problem
Unfortunately many of us are guilty of over-spending on necessities and having an unhealthy attitude towards luxuries. You don’t need to feel bad if you fall into this category – at some point in time all of us do.
But, in much the same way as a pledge to lose weight and keep it off, the answer isn’t to feel guilty about your bad habits, punish yourself in the short term and then go back to your old ways. The answer is to change your whole attitude for the better, for good. And the good news is, that isn’t as difficult as you might think.
If you’re determined to over-spend, why do it on the basics?
Your monthly household bills make up a big chunk of your spending – so make sure you’ve got the best deal. Even just switching your energy supplier can save you hundreds of pounds every year. See if you can get a better deal on your insurance too – again it could save you hundreds over the course of the year.
So many of us spend too much on our mobile contract, paying for more minutes and texts than we ever use. Make sure you get a better deal, with help from contract comparison sites such as Mobilife.
Easy ways to spend less
It’s the big one we mention all the time – don’t buy your lunch for work, make it instead. With the average Brit spending £5 every working day on lunch/coffee etc, we are spending an unecessarily huge £1,200 a year. Think about the kind of holiday you could have with that money!
For lots of us with hectic working lives, keeping fit is important. But spending £40 a month on gym membership really isn’t good value unless you genuinely do go 4 times a week, every week. Instead why not join a sports team, cycle or walk to work, go swimming once a week at your local pool or even just make time for a run in the park. That way you can ditch the gym membership, saving you about £480 a year.
Don’t bother with the lottery. Your chances of winning big are so minimal that you’ll be much better off putting the £10 you would have spent each week into a savings account – that way you’ll still have the money AND it’ll be earning you interest. So if you play the lottery every week, instead of spending £520 a year hoping you’ll win the jackpot you’ll have saved £520 plus interest.
These are just a few examples, but you get the idea. Spending a lot less over the year is much easier than you think.
Why you must not give up
Budgeting and living within your means is about prioritising the important stuff and cutting back on the rest. Rent, food and bills come first, followed by paying debt, and saving or long-term planning. Luxuries like after-work drinks, eating out, and clothes shopping should all be viewed as just that – luxuries. If you have money left after you’ve used it on the important things, then you can treat yourself.
If you find your resolve wavering and you can’t be bothered to make tomorrow’s lunch on a Thursday evening, force yourself to think about the consequences. Perhaps you crave a lovely summer holiday, or you’ve been desperate for a new laptop, or you really want to splash out on a new dress for a friend’s wedding. You can have all those things if you’re careful with what else you spend your money on, so stick at it.
Challenge yourself to spend less on everyday things, and be proud when you really have got a bargain!
Think how fantastic it would be to be able to spend your money wisely, gradually get rid of your debts and have cash left over each month to treat yourself with what you enjoy. It is possible if you get into these better spending habits and keep at them. Go on, you can do it!
If you think managing your money effectively is only for the professionals – think again. You can take control of your finances – it’s simple, straightforward and achievable with this guide.
Jasmine has teamed up with learndirect to create a great guide aimed at helping you get to grips with you money in just a few simple steps. And because we like to give you all the very best advice for free, you can download the guide right here and now, without paying a penny.