Last year, 1 in 5 (3.4 million) people aged 50-69 in Great Britain borrowed or used more credit than previously, according to Age UK.
It’s hardly surprising as the cost-of-living crisis and soaring bills are putting pressure on us all. But, in many cases, improving our budgeting skills can go a long way towards getting our finances back on track, without the need to borrow.
As a money-savvy reader, you’re almost certainly aware of how you’re spending, and likely practicing some element of good budgeting already. But it's always possible to improve your habits (or to remove some bad ones that you’ve picked up along the way).
Making sure you’re doing the fundamentals well can help you reconnect with your financial goals - and remove the dread from looking at your bank balance.
As obvious as it sounds, the hardest step is often just setting a budget. This means having complete clarity on your income and outgoings.
It can be difficult, as money and mental health are closely linked – a poll from the Mental Health Foundation found that nearly a third of us are stressed about our financial situation, so facing your monthly expenditure won’t be a straightforward task for many.
The good news is that you can start simply. For your income, list the money you’re getting in each month, such as that from work, pensions or investments. This is your ‘base level’ to plan your monthly spend from.
If your earnings are irregular, and you’re not sure how to choose the amount to work with, either take the lowest amount from recent months (as this will give most safety) or take an average over the last year.
With your monthly income locked in, it’s time to list your expenses. We recommend splitting these up into categories such as:
Now subtract the outgoings from the income. If you’ve got money left over, consider upping your savings or paying down any debt more quickly.
If you are spending more money than you have coming in, don’t worry. Being honest and creating a dedicated budget can get you back on track and highlight obvious opportunities to save.
“Budgeting doesn’t have to be an onerous task. Whilst it may take some time to get to grips with your budget at first, once you have it up and running it only requires a few brief check-ins every month to stay on track,” says Charlotte Jessop, Director of Looking After Your Pennies.
“If, after going through your budget and identifying areas for savings, you still don’t have enough to repay your debt, don’t panic, as support is available,” says Simon Trevethick, Head of Communications at debt charity, StepChange.
If credit card payments are an issue, Trevethick says: “Transferring a debt from a card with a high rate of interest to one with low or 0% interest could help you pay off the debt faster [but you may incur a charge to do so].
“But low or 0% interest credit cards are hard to get if you don’t have a good credit rating. This means you can’t rely on balance transfers as a way to deal with your credit card debts.
"If you do transfer a balance, make sure you cut up the old credit card and close the account. Otherwise, you may be tempted to keep spending on both cards and you’ll end up with two debts.”
If you’re struggling with your finances, remember that there is free help available via places such as Citizens Advice, National Debtline or StepChange Debt Charity.
Now that you’ve got everything listed down, both coming in and going out, you can start making a plan that you can stick to each month.
First, think about the medium – a spreadsheet (and there are loads of great templates online, from places like Google Sheets), MoneyHelpers’ calculator or even a simple notebook will do.
“It can be helpful to choose a medium for your budget that suits you” says Jessop. “You may want to go with a spreadsheet, an app, or even keep it old-fashioned with a paper and pen.
“Lean into what you are comfortable with and you’ll find it easier to keep up with those regular check-ins.”
If you only work in cash, you could even get a few envelopes and stash the money away in those each month – it might be more inconvenient (and a little less safe), but it’ll keep things simple.
If you want to use the envelope system but would rather keep your money digital, think about using apps like Goodbudget, which use similar methods but allow you to enter everything on your smartphone instead.
Whichever method you use, create income and expense categories as well as a dedicated section for your saving goals.
Be brutally honest and decide how much you should be spending on each expense – don't worry, you can always revise this later, but it’s important to just create a starting point.
Now, it’s on to finding ways to cut your spending, or bringing in a little extra income.
‘Low-buy’ is the practice of restricting your spending to save money over a certain period of time. It involves setting out some personal ground rules, such as:
Everyone’s low-buy rules will look different depending on their money habits, but the main goal is to eke out your use and find free alternatives through the challenge.
Buying second hand doesn’t just mean using your local charity shops, as there’s also a raft of second-hand apps and sites now, like Vinted, that offer second-hand designer clothes at a fraction of the original price.
But, whether you’re buying second-hand clothes or furniture online or in a shop, it’s important that you understand your rights, as you can then shop with more confidence knowing whether you can still return things, or where you need to take more care.
Many of our purchasing decisions are driven by impulse and emotions. But, by taking a breath and pausing before you buy, it’s possible to save a fortune.
If you're shopping online you can always put something into your virtual basket and wait a day or two before you buy.
You can employ the same strategy in shops too. Take a picture of an item you like and allow yourself to come back in a few days’ time. In many cases you’ll find you either don’t need or want the item as much as you initially thought.
We all know that we can get a better price if we shop around, so the notion of using a comparison site to switch utilities feels a bit obvious, right?
Well, over half of us aren’t using them to get a better deal – so if that’s you, get searching. While you might not always get the best price using them, you’ll have a much better understanding of how much you should roughly be paying.
Keep a note on when your renewal is due (and do turn off auto-renewal, unless it’s for a critical service) and do some research to find the optimum time to save.
“With bills, like home insurance, broadband and mobiles, always shop around a month before policies or contracts end so you can seamlessly switch and save money,” says Sue Hayward, Consumer & Personal Finance Expert.
A budget isn’t just about paying out less – if you can find out ways to bring more in, the exercise becomes a lot easier.
If you’re in a position where you’re slowing down at work and own your home, you could consider renting out a spare room, if you have one. After all, you can earn up to £7,500 a year, tax-free, using the government’s Rent a Room scheme, so long as you’re letting out furnished accommodation in your home.
If the idea of having someone inside your home isn’t a palatable one, what about outside the front? If you live in a desirable area, you can make hundreds letting out your driveway, which is perfect if you have regular space you’re not using.
It’s been proven many times that sticking to a budget changes spending habits. In fact, a study found that post-budget spending is lower than that pre-budget six months after it was created – even if it’s not stuck to perfectly.
However, it takes time to change habits, especially if you’ve been spending money in a certain way for your entire life.
The thing is to commit to forming the habit of budgeting – remember, it can take anything from a few weeks to nearly half a year to really create a new way of living financially – but the rewards are enormous.
Firstly, set clear goals, such as paying off a credit card by a certain point, and review them at set moments during the year to see how you’re doing. By focusing on a tangible outcome, you can see how much you’ll need to achieve it and know that you’re working towards something that actually makes a change.
If you find it hard to not treat yourself from time to time, you can also explore tools and services that do the hard work for you and boost your budgeting power little by little: “Lots of banks offer a ‘save the change’ option where debit card spending is rounded up to the nearest pound and ‘change’ swept into your savings”, says Hayward.
These round-up pots can be monitored monthly and reinjected back into the budget – ideally for something to reward yourself for working so hard, aiding motivation and cementing a positive habit.
With more free cash per month, you could create an emergency fund to protect from life’s sudden costs, save more for your pension (after all, the cost of retirement keeps rising) or gift the money to family members that are struggling.
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