From learning to drive to make a mean chili, there are many ‘adult’ milestones we tick off as we get older. However, for many people, managing money remains one of the hardest things to master. In fact, according to the latest statistics from the Money & Pensions Service, 39% of adults don’t feel confident about managing their money. The good news is it’s never too late to start learning. Here are four key objectives for a strong money management strategy.
Create a budget
Creating (and sticking) to a budget is the cornerstone of any money-management strategy. Without a budget, money can seem an abstract concept and so you can easily justify buying things you can’t afford. With a strong budget, you know exactly what you have to spend − stay within it and you’ll stay debt-free and hopefully save a little too. Go beyond it and you’re on a slippery financial slope.
There are lots of budgeting apps you can use, or go old school and do it on a spreadsheet. Seeing everything itemized can really help you to understand your situation. Which leads to the next point.
Understand your expenses
We all know about our regular outgoings such as rent/mortgage, utilities, and other regular bills, travel costs, and food. But what about those items that aren’t regular? There’s eating out, buying clothes, and tickets to various events. If you have kids, the costs of school meals and classes and birthday present for friends can be easily overlooked, but actually add up to a considerable amount over a year.
The solution is to keep track of all your expenses for a month. You have to be pretty strict about this. Remember to keep track of things you paid for in cash as well as debit and credit cards. This will enable you to get the true picture of your outgoings. Take this number away from your income. If you end up with a negative number, you’re spending more than you make, meaning that you’re in debt and maybe adding to it each month. If this is the case, you need to look where you can make cuts, so you can get that figure into positive numbers, start paying off your debt, and putting some into savings.
Plan for large expenses
Part of any good money management strategy should be planning for large expenses. The general rule is to keep three months’ income in an easy-access savings account, but the latest figures show that in 2018-19, 12.8 million households in the UK had nothing or less than £1,500 in savings. Unexpected events such as boiler or car repairs can leave us in a difficult financial position and things like illness or redundancy can derail us even further. Use your budget to work out how much you can afford to put away each month and set up a direct debit to siphon it into a savings account as soon as you get paid.
If you don’t have any financial goals, it’s easy to let your money take control of you, rather than you control it. Without a goal, if you’ve got a bit of money left at the end of the month, for example, you might be tempted to splurge on something you don’t need, rather than put it towards the thing you’re working towards.
What you decide for your financial goal will be up to you, but make sure it’s realistic and give yourself a time frame. It could be something like saving enough for a house deposit within the next three years or paying off your debts within two. Setting goals to work towards will help keep you focused.