My top three financial tasks to schedule today
Do you put off doing your finances because, frankly, there's always something more fun to do?
Do you end up saying “I’ll do it later” and going back to scrolling Instagram instead?
Does all of this leave you with a vague feeling of self-disgust and impending financial doom?
Do you ask yourself why you can’t just force yourself to get it done?
Once you get going with money management, watching your numbers get better can be rewarding. Seeing the debt drop and the savings rise feels really good. There are even ways to make a game out of some kinds of money-saving. In general, though, managing money is admin. There's no getting around it so you might as well own it.
In fact, I think the expectation that doing your finances should somehow be super easy or enjoyable can be counterproductive. Expecting it to be kind of a drag, and then just buckling up and getting on with it is honestly more effective.
The trouble with financial admin is that it's easy to procrastinate over it. Insurances auto-renew, deals on credit, savings and utilities expire - but you still get the service, and there's always something more exciting to do than track your spending against your plan.
Letting things just happen to you is easy, but it’s disempowering and it costs you money. Your spending creeps up and you don’t notice. You don’t spot frauds or mistaken charges against your account. You miss out on deals and end up overpaying.
Scheduling time to catch up on financial tasks can help make sure you don't give in to that urge to sack it off and watch telly.
Here are my top three types of tasks to schedule:
A regular time to analyse your spending for potential cost savings - about 15-20 min a week;
A regular time to check for unexpected payments from your bank account - about 5-10min a week;
Six weeks before any contract or deal ends time to research and find a new one - about one hour each time.
Knowing you have an appointment with your money means you can switch off and not worry about it the rest of the time.
I'm all about helping my clients make life easier for themselves. Letting your calendar help you manage your money is a really good start.
For more on how avoid procrastinating on financial tasks, or anything else really, check out this episode of my podcast, Squanderlust.
Your daughter's spending plan
This is the final post in my series on different ways to budget a steady income. You can hear more discussion of the different methods here on my podcast, Squanderlust.
This method is actually a digitised version of the old school ‘envelope’ or ‘jam jar’ method. Hence the name. To do this, you’ll need an account with one of the new app-based ‘challenger’ banks - Starling or Monzo. It uses their spaces (Starling) or pots (Monzo) features to manage your spending. These features are usually marketed as a way to save for goals and they can certainly be great for that, they can also be used for controlling normal monthly spending.
How to
You will need to decide what your spending types are. I suggest keeping things simple and having no more than ten. These should be a combination of your day to day spending (e.g. groceries, clothing, transport) and occasional spending (e.g. repairs, device upgrades, gifts). Both Monzo and Starling have built in categories for types of spending, which they use to label your payments out so you can see where your money is going. You can choose to base your types on their categories or create new ones if theirs don’t quite fit.
You’ll need to work out how much money you need to cover each type of expense and I talked about this in a previous post in this series. This is your spending plan. The difference in this method is how you keep track once you have the amounts worked out.
Now make a pot or space for each type of expense.
When your income comes in, sort it into the pots/spaces according to your spending plan. Monzo has a Salary Sorter function which can help with that. You’ll need to do it manually with Starling.
Monzo has a function which allows you to nominate a bill to come from a specific pot, so you can name one pot “bills” and have all your direct debits/standing orders come from this pot.
If you have a Starling account you’ll need to keep the money for bills outside of your spaces until all the bills are paid, so you will want to make sure your bills come out of your account ASAP after payday.
Alternatively you might prefer to combine this with the ‘multi-account method’ from my previous post and have a completely separate account for bills. If you want this separate bills account also to be with Starling they charge a fee of £2 a month. You may decide this is worth it to get the additional control of splitting your bills from your spending while also keeping all your accounts with one provider.
Now when you spend money, pull down the same amount of money from the relevant space or pot, so you know what you have left to spend on each area of your life.
If you need to meet an occasional expense, transfer the relevant amount from the relevant pot to the main account.
If you are extra frugal one month and have money left in your spending money type spaces/pots on pay day, transfer the extra to an occasional expense pot/space or, if these are already looking healthy, into an actual savings or investment account where you can get a good return.
Let’s talk about the advantages and disadvantages of this method.
Pros and cons
The pros:
This is a relatively low maintenance way to control spending and make sure you have enough money to cover bills and save for short term goals.
It’s more mindful than the multi-account method. If you’re spending more than you intended, you can tell fairly easily where the over-spend is coming from.
Although it’s an all digital method, this has the advantages of a cash budget method. The amounts left available for each type of expense are very clearly visible whenever you go into the app.
As with the multi-account method, as long as you err on the side of caution each time, you can be a bit rough and ready in your calculations and still be ok. For example, if you know your phone bill is typically £17-20 then as long as you leave £21 in your bills account/pot for it, you know you will be ok.
You are almost certainly never going to get a charge for a bounced direct debit or an unpaid bill.
While you’re out and about, you can tell straight away if you can afford to treat yourself now or if you’ll need to wait. No need to consult your spreadsheet.
Very easy to sustain. If book-keeping style budgets don’t work for you and become overwhelming, this will almost certainly be a better choice.
Don’t have to remember to request/keep your receipts.
The cons:
May need to switch banking providers, which can have an impact on your credit record.
Takes time to set up.
Need to be comfortable with app-based banking.
Need to spend time moving money between the pots.
Need to be sure any automations are working correctly, have the right amounts and come out on the right days.
Unless you create a single “occasional spends” pot/space, you may find you need to pay for a particular item before you have saved enough e.g. if the washing machine breaks suddenly. This might mean you have to transfer between the pots/spaces for this type of spending to make up the difference.
What do you think? Would this style of spending plan work for you?
To hear more about different ways to plan and track spending, check out my podcast Squanderlust Episode 7 : Budget Pick ‘n’ Mix
The multi-account method
Today we’re going to get into budgets for people who really hate the admin side of budgeting. This is a way to automate parts of the control of your spending and make certain you have money ringfenced for bills and savings before you can spend anything.
How to
For this method you need three accounts, two basic or current accounts and one instant access savings account. The first current or basic account is for bills and other automated payments. this needs to have direct debit/standing order facilities. The other basic/current account is for spending money and it needs a debit card. The instant access savings account is for keeping money ready for occasional spending - things like birthdays, household or car repairs and religious festivals. It may be useful if this is with the same bank or building society as the spending account, so you can easily transfer between them.
You’ll need to work out how much money you need to cover all your expenses and I talked about this in a previous post in this series. The difference here is how you keep track once you have the amounts worked out.
Ideally, you should get income paid into your bills account. You will need to know how much needs to stay in this account to cover your bills until next payday. I suggest you keep back a little bit more than this amount, in case any of the bills is higher than expected.
Then decide what needs to be paid into your savings account to cover the occasional costs. If this will be a consistent amount, you can set up an automated payment to the savings account. Alternatively, you can make the transfer manually on the day you get paid.
Decide how much you want to go into longer terms savings and investments and, ideally, automate these transfers too, then you can treat them like a bill.
Finally, transfer the amount you want to use for day to day living expenses into your spending account.
If you need to meet an occasional expense, transfer the relevant amount from the instant access saver to the spending account.
You’ll need to keep an eye on how much is left in your spending account throughout the month. You should also schedule some time once a week/month to go though your bank statements/online banking. That way you can be sure that there are no unexpected payments and that the amounts you have going into each account are still appropriate.
If you are extra frugal one month and have money left in your spending account on pay day, transfer the extra to the occasional expense savings account.
Let’s talk about the advantages and disadvantages of this method.
Pros and cons
The pros:
This is a low maintenance way to control spending and make sure you have enough money to cover bills and save for short term goals.
Although it’s an all digital method, this has many of the advantages of a cash budget method.
As long as you err on the side of caution each time, you can be a bit rough and ready in your calculations and still be ok. For example, if you know your phone bill is typically £17-20 then as long as you leave £21 in your bills account for it, you know you will be ok.
You are almost certainly never going to get a charge for a bounced direct debit or an unpaid bill.
While you’re out and about, it’s very easy to see at a glance if you have spare fun money this month, or if you need to tighten your belt. No need to consult your spreadsheet.
Very easy to sustain. If you’re someone who has started multiple book-keeping style budgets in the past and never kept up with them after the first couple of weeks, this willll almost certainly suit you better.
Don’t have to remember to request/keep your receipts.
The cons:
Less likely to spot a fraudulent payment quickly.
Need to be sure your automations are working correctly and come out on the right days.
Less familiar with the nitty-gritty of your spending, so less likely to spot opportunities to save money, without additional effort.
Requires multiple accounts, probably with at least two different providers.
What do you think? Would this style of spending plan work for you?
To hear more about different ways to plan and track spending, check out my podcast Squanderlust Episode 7 : Budget Pick ‘n’ Mix
The pros and cons of budgeting
Ugh… budgeting.
No one wants to, we all know we “should”, and if you read any personal finance blog you’ll be told you must, because it’s the foundation of good financial management. There will probably be the classic quote from Mr Micawber, the literary patron saint of debtors:
‘My other piece of advice, Copperfield,’ said Mr. Micawber, ‘you know. Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.”
David Copperfield (1850) by Charles Dickens
This is true enough. Money out must be less than money in, or it all goes horribly wrong.
Even so. Ugh…. Budgeting.
One reason, I think, why the personal finance experts who urge us all to budget can come across a bit… dare I say, preachy, is because they only acknowledge the upsides to planning and tracking your expenses. Many don’t like to mention the reality that there are downsides too.
Now in my opinion the downsides are more than outweighed by the upsides, but it’s disingenuous to pretend they don’t exist.
So I’m going to be really frank and give you the pros and cons and you can decide for yourself.
First the downsides.
It’s boring. Simple really. There are lots more exciting and interesting things we could be doing with our time than tracking our spending. Some people get really into it and good for them, but, in general, it’s a chore. Most of us don’t want to make admin our hobby.
It takes time. Related to 1. is the fact that there are only so many hours in the day and many other activities, not to mention people and pets, that want our attention. You may also have planned to spend quality time with kids, partners and friends, stay hydrated, exercise, meditate, keep up with hobbies, read enough of the news to have semi-informed opinions about the world and maybe, I dunno, do whatever your employer or customers pay you to do. Adding in time to plan and track your spending can feel like the final straw for an overloaded schedule.
It can be depressing. If you’re used to just crossing your fingers and getting by on hope, reality can bite hard when you finally face it, and creating a spending plan means you do have to face reality. There’s no point in writing a plan that isn’t based in fact. This is one of the biggest hurdles to a lot of people’s budgeting. They just don’t want to know how bad things are.
It can cause regret. There’s nothing like making a positive change, to make you regret not having changed sooner. Especially when it comes to stopping overspending and starting to save and invest. It brings you up short against all the ways you’ve wasted money that could have gone on a better financial future.
No spending plan, no need to feel those pesky regrets today. Ta da! (never mind that they’re waiting around the corner.)
Maths. (I mean, it’s only basic arithmetic and there are lots of apps and spreadsheets that will do it for you but still… I know anything to do with numbers bothers a lot of people.)
You may have to give up on some of your pleasures. This is another big one. It’s easy for us to convince ourselves that things we want are in fact “necessities” or that we just can’t save “this month” but we will next month when we’re magically better people who don’t shop so much and buy fewer takeaways.
A spending plan makes it clear how much we can actually afford to spend on shopping and takeaways (or e-books and in-game purchases or whatever tends to tempt you). There’s no getting away from it, something will have to give and it’s probably some of your fun money. Do. Not. Want.
OK, that’s enough downsides. If I’ve forgotten any, tell me in the comments.
Let’s look at the upsides
You know exactly where you are. This is key. Knowledge, as they say, is power. Without a plan you’re constantly guessing about whether you can afford the things you need or want. The truth is you’re probably making mistakes all the time.
Do you have enough money for that day trip? …maybe… If you go, will you have enough for your friend’s birthday present at the end of the month? … you hope so…
With a spending plan you can answer those questions. You can go on the day trip as long as it doesn’t cost more than £45, that way you’ll still have £20 for your friend’s present.
You can find relatively painless ways to save. A spending plan can be a great motivator to switch up your utility, credit and insurance providers so you can find more money for fun and savings. With a plan you can see straight away how doing this will benefit you.
You can get greater value from your spending. It may be that you’re spending on non-essentials in ways that are costing more than you realised and don’t actually bring you joy. Having a plan will show you what’s really going on and help you focus your spending on what you value most and away from the trivial.
You can spot frauds, errors, and price increases straight away. If you’re tracking your spending and bills every month against your plan, then you’ll notice if something doesn’t add up. The minute your mobile phone company increases your bill, you can find a new plan. If there’s a payment you don’t recognise, you can query it. If you’re charged twice for the same thing you can request a refund. Giving money away for no reason? No thanks!
You can plan to pay occasional expenses out of savings, not credit. Household repairs? You can put the money aside for that. Birthday and other celebrations? They’re in the plan. School uniforms? Covered. A nice meal on your anniversary? Heck, yeah!
Even if something essential is more than you thought ("New brakes to go with that MOT, Madam?") and you have to shuffle money out of, say, your holiday fund, or even put the difference on a credit card, you’re still better off than if you had no plan at all and needed to find the whole sum out of nowhere.
If you need to say “no” to a pushy salesperson or a whining child, you can do so assertively, because you’re clear about what you can afford and what you can’t. You can also say “not yet” if you will have the money later on, which brings us to the next upside.
If you have children, you can set a good example and help them learn positive money habits. By telling your children “we don’t have the money for this yet, but we’re saving up” you’re encouraging them to do the same for the things that they want.
You can build an Emergency/Rainy Day/ F*** Off Fund. Start with saving one month’s basic expenses, then build up to three months and eventually between six months to a year’s worth. Then if you can’t work or you have a sudden big expense, you’ll know you’ll be ok.
You’ll be surprised what you can afford. Remember the day trip in point 1? Without a spending plan you might assume you couldn’t afford to go because of your friend’s birthday and then you’d miss out.
What’s more, planning spending allows you to save for goals that may previously have seemed completely out of reach. These could be things like a good camera and a set of fancy lenses, a really gorgeous winter coat, a high-powered laptop, or a super-comfortable new sofa.
You can give more. When you know what you have and you’re confident you can afford what you need, then it’s nothing to give some of your non-essential spending money to a cause you believe in. I personally love Money A + E, a black-owned community organisation helping BAME and vulnerable groups to improve their financial wellbeing through advice and education. You can hear an interview with their founders here.
You can start to invest more for the long term. Once you are in the habit of using your plan to find ways to save, you can put some of those savings into investments, whether through an ISA or pension to grow your wealth and make your future self richer.
You’ll have peace of mind. It’s stressful not knowing what’s happening with your money. You constantly carry the fear of not knowing what you’d do if your income dropped or you faced a sudden expense. A spending plan gives you clarity. You know where you are so you can see what actions you need to take and nothing is more reassuring than that.
So there you have it, the pros and cons of creating a spending plan. I definitely think it’s worth the effort, and I believe me I had to get over every one of these downsides to feel it. The last upside is the kicker.
Peace of mind is, frankly, priceless.
The question is how to make a spending plan that actually works for you. I’ll be writing more blogs about that, and you can also listen to Alex and me discuss it on my podcast, Squanderlust.