It’s always been important to learn how to manage money, but just lately it’s been thrown into sharp focus for most of us.
Never too late, now’s the ideal time to learn some practical strategies. No gimmicks, no tricks, no hacks, just sound common sense that’ll help you budget better in the coming weeks and months.
Monitor and Track
Knowing where your money is going exactly is the first step to getting a grip on it. While the system shown here is very basic, it works. In fact, it’s based on accepted accountancy practices so if you find it fun (yes, some of us do!) learning it can set you up to study for a well-paid career in finance and accounting.
You might find this system easier to get going if you begin when your monthly spending cycle starts.
Here we go:
Grab a notebook and pen or fire up a spreadsheet and create four columns. Head the columns Date, Item, Cost and Balance.
Open your banking app or find your latest paper statement and write your current available funds at the top of the ‘balance’ column. The figure you record here will tick down with each spend during the month, then at the end of the month you’ll start a new sheet or page and transfer what’s left of the old balance to the top of the new one.
Additional income during the month should also be recorded, in which case the ‘balance’ will increase accordingly.
Fill in the rest of the columns exactly as they’re headed. So, write the date of the transaction, what you bought (or where earned income came from), and how much money changed hands, either coming in or going out. Add or subtract the amount in your ‘cost’ column to or from your balance.
That’s all you have to do throughout the month. You can either record expenses daily, save receipts and record them at the end of the week, or bring your records up to date randomly whenever you have a minute.
As the month progresses, don’t forget to add direct debits into your new accounting system. You could do this straight away at the beginning of the month if you prefer, then you know exactly where you stand.
Even if you hate it, try and keep it up for a month or two at least. With a history of spending recorded in detail like this, you can then start doing some deeper analysis to really get control over your finances.
The Break Down
Now you’ve got a detailed accounting record, you can perform basic analysis to find out where your money is going. Look for categories of spending, such as how much went on groceries, motoring, entertainment, clothes, kids’ treats, rent or mortgage, utilities, internet, and phone etc.
This is highly personal since we all have different spending habits, so the categories given are just for example. There’s a quite comprehensive list of personal budget categories here.
Yours might differ, and when you see your spending in cold black and white you might be surprised how much goes on things you don’t pay much attention to. It can, for instance, cost £40 a month or more just to buy a cup of coffee every workday.
Just doing this exercise can show you ways to trim the fat if you need to without feeling too deprived. You’re far more likely to stick within budget if your financial decisions don’t bring too much pain.
Put into Practice
Whether you’ve got a lot or a little, what money you have ought to be working as hard as possible. As well as keeping tabs on spending and expenses, try one or two of these ideas:
Scour your bank statement for direct debits that aren’t giving value. Often, little amounts go out every month and we don’t particularly notice them, like product insurances for things we bought years ago. Cancel those if you’re past needing them.
Other things you could potentially do without are memberships and subscriptions that you’re paying for out of habit more than need. Magazines, clubs, gyms, gift boxes… there are quite a few categories to watch out for.
Prune your streaming services, keeping just the ones you actively watch regularly. Make sure you’re not paying too much for mobile contracts or TV packages.
See if meal planning or switching supermarkets will cut your grocery bill. It’s really hard to just get what you need when you pop into a supermarket for top-up items. Make a shopping list based on your meal plan for the week or month and stick with it.
In the meantime, carry on doing your regular personal accounting, mentally taking note of the changes you’re making as you fill in your sheets, so you can see which make the most difference.
It’s an ongoing process but learning these basic accounting skills will make you much more aware of how money features in your life. Accounting is a valuable and sought-after skill, well paid, and a stable career. If you find you enjoy managing your own money, you could learn accounting and help companies manage their finances too.
