I can’t claim to be any kind of financial expert, and I certainly don’t have millions of pounds in the bank. Having said that, I don’t go into my overdraft, don’t overspend on a credit card, and am pretty organised, so like to think I’m not terrible with money. Various people have asked me how I always seem to be in the black, so I thought I would share.
This year, I want to save as much money as I possibly can, to put toward a) a new kitchen and b) a bigger flat at some point in the future, so am reviewing my finances to try to pinpoint where I can save some money. I know a lot of other people are doing a similar thing at this time of year, so thought I’d share what I’m doing and hopefully get some tips from you about how you sort out your finances!
Step one is: Assess what you spend
You can’t save anything until you know what you’re actually spending money on. I used to be incredibly anal about keeping my accounts in order. Each month, I would sit down with a bank statement and manually input every single penny I spent into Microsoft Money. I could then pull out charts based on my spending and see where the bulk of it went (answer: rent, “cash” (ie: probably the pub), and bills).
I did this for 3 or 4 YEARS, which is such a long time I can’t believe I kept it up for so long. But while I was doing it, I found it incredibly useful to relive my spending and figure out where my money was all going. When I first moved to London I earned very little, so being hyper-organised about my money was the only way to afford my rent and bills and food and still have something left over afterwards.
Now, with internet banking making statements so accessible, I don’t manually input the data into anything, but I do try to review what I’ve spent by reading through my statement every few weeks. It can be a real eye-opener when you see that the “quick lunchtime shop” actually cost you £70 or that the drink with a few friends ended up costing you £50 in three repeat visits to the bar. It’s the best way I can think of to see where you can actually make savings.
So, what I do is:
- Login to your online bank account or ring up your bank and ask them to post you your annual statement
- Focus on one month. I chose November because December was a funny month what with Christmas and being away and off work for a week. Write out all the regular outgoing expenditure. This includes: Rent, bills, insurance, phone, any monthly payments like for Spotify or subscriptions. I put together a template when I was working on this – you can find it here if you want to download it.
- Next, group together other types of spending, so – how much you spent on restaurants, how much on bars, how much on clothing, how much on groceries – if there is one area here that you think is disproportionate, then it’s a good way to see where you should be spending less
- Are there any other things on there that you often spend money on? Do you already send money every month to a savings account? Write them down!
- Look back at September and October and make sure there aren’t any costs that for some reason weren’t accounted for in that month and add those in as well
- Add all of these expenses together and then subtract it from your net income. How much do you have left? More than you think? Less? Are you going into the red every month just on these expenses alone?
It probably takes around 45 minutes or so altogether, but I find it totally invaluable. Is there anything that you’re spending loads of money on? Are you buying anything that you don’t absolutely need? Are there any expenses that you can cut? Are there any miscellaneous direct debits that you’re paying that don’t relate to services you’ve actually subscribed to? Are any of your bills too high and could deal with being swapped for something cheaper?
This might actually highlight a major issue – do you actually need to move somewhere with cheaper rent if, after rent and bills you only have enough to keep you going for a couple of weeks, rather than the whole month?
I find that it’s only by actually going through my statement that I can see where I have spent my money – thinking back through the month you forget about all those expenses that come out automatically and also about that time you spent £35 in Sainsburys when you went in for a lemon or when you downloaded 4 books onto your Kindle because there was a sale on.
Once I work out how much I have left and what expenses I can cut (or cut back on), I can start to think about the next step, which is developing my savings plan. More on this soon!
Have you looked over your finances? Was there anything surprising? I found a direct debit for £5.79 for something totally unidentifiable. I have now cancelled it – if someone calls up next month asking for the money I can review whether I keep that expense or (more likely) cancel whatever random service I appear to not even know I am signed up for and save almost £70 a year right there!
Anything you do differently? Any tips or advice? Please share in the comments or on Twitter!
Download the template I use when I do my income vs outgoing analysis. It’s pretty basic, but works well for me.