Modular Budgeting or Potting Cash - A Sob Story!?

Cash-Strapped.T32

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Hey all - It's about 5 months since I "got real", and started to actually pay attention to the amount of money I have coming in/going out, none of this comes naturally to me, it's hard work keeping it up!

Anyhow, financial Viagra jokes aside, I'm a real beginner saver here, on a low salary, no benefits & have regular outgoings so I'm hoping to build up at least some small amount of savings rapidly, at the same time as finding creative ways to reduce my outgoings. :cool:



To that end, I've done the following;

* Built a fairly detailed monthly budget spreadsheet which rolls-over from month to month, carrying over my balance & easy to read categories of mandatory, discretionary outlays etc, which actually provides a pretty accurate predictor of any given month's expenditure (this will be important later).

* Set up an instant-access saving acc with my bank (appears on internet banking, and can transfer into my curr a/c instantly), which I aim to maintain around the £250/£300 mark, to avoid me having to dip into my £400 O/D most months.
Major purchases will probably go on the O/D as it's intended, but those normal month-to-month extra outlays will hopefully fall under the new "reserves fund".


* Set up a second insta-savings acc with another bank to act as my bike fund.
I commute daily (45 mins each way) on a 125 motorbike, I have reconciled myself to the fact I can't afford a car any time soon, so this account is to smooth out the running costs, absorb any garage bills, new tyres (at least twice a year), etc..
In addition, I hope to save up for a bigger(ish) bike possibly next year, and this is the vehicle I will use for it.


- I will vary the amount I save in these accounts each month, according to how the month has gone - neither of them are earning much in the way of interest (1.74% & 2.85% respectively), but then again I do intend to make use of these savings semi-regularly - I have checked & neither account will penalise me for this use.

Ok, so far so good, these 2 accounts are very small scale, intended as vehicles to allow me to smooth out my finances, to avoid those months where a big unavoidable outlay wipes me out. :mad:
Small amounts, deposited at the start of the month & aiming to get under the "so small it's never missed" limit, so I don't notice it gone if you get me.




* Finally, I have gone ahead & applied to First Direct for it's 8% reg-saver, in which I intend to actually save up a bit of real money; As a by product I will also end up with a second current account too (FD 1st Account).


Now, the above plan has been in my head for a while, & while I had never planned on getting a second curr-acc, it provides me with an oppertunity for a bit of an experiment;

If I have a decent idea of my monthly *mandatory* outlays, such as petrol, food, etc.., then would it be of benefit to pre-allocate this cash to my new current-account at the beginning of the month, and then use this for my monthly running?


The reasoning here would be that by limiting myself to whatever I allocated, I hope to subtly manipulate my own behaviour to bring down my personal running-costs, nowt like a bit of subtle manipulation ay? :rotfl:

I live about as cheaply as I know how, the social life was the first thing to get the kibosh, but now I need to focus on ways to improve the execution rather than the idea.. (if that makes sense)

So - thoughts? Mad idea?

You can see the possibilities of course, if I manage to pull this off, it will provide oodles more stable finances - yeah I know that pre-potting the cash like this doesn't actually make me earn any more money, nor does it make things cheaper, but I hope by this to break up my spending in such a way as to actually see a benefit from keeping the costs down, and to allow me to maintain a regular surplus which is something I've never done in my life before.. [/shame smiley]


Any advice would be so much appreciated, this isn't really some interesting theoretical experiment, it's my life, certainly for the time being. [/melodrama!]
Thanks.

Joe_Bloggs

@Cash-Strapped.T32
I admire your organizational skills and sense of purpose. Once you have a cushion of savings you can afford to have the wheels fall of your budget for a month or two. Without a cushion you have to scramble to borrow money at extortionate rates.

If you have sufficient savings you can make use of credit cards without any risk of trashing your credit record due to late or non payment. There is little point in saving money at a few percent per year when you are being charged a few percent per month in credit card interest or overdraft fees and interest.

J_B.

Cash-Strapped.T32

Cheers!

To be honest mate, I'm not naturally organised; I work in admin where again you have to be organised (actually I run a small office for which I get paid a pittance! ), and my method is to go through all the motions of being organised, in the hope that by doing the actions some of the effect will rub off!

Hence the thing with the accounts; If I were *really* organised I would not need to use lots of different pots, this is just my way of working within my (known ) limitations.

As to sense or purpose, tbh I just spent years of muddling-through & bobbing either a few hundred above or below the zero-mark at any given time & I just couldn't carry on like that, I have no savings nor pension to speak of which ain't clever at nearly 30.

Because I use them so regularly for reports & such for work I devised the budget spreadsheet I mentioned above, thought I was dead unique, then discovered this site & then realised loads of people do it! :rotfl:


Cheers for the advice re; Credit-Cards; Do you mean the method of using a 0% card for spending & using a S/O to pay off the balance automatically?

I've been doing a little bit of reading up on that idea but didn't really come to any firm conclusions tbh - Incidentally, my 2 reserve funds are up & running with about £80/£25 respectively, and at the end of this month I hope to start putting the full plan into effect barring any sudden changes.

Wish me luck matie!

pqrdef

I find it's a mistake to allocate a pot of discretionary money for the month and keep track of how much is left, because the amount left would always be zero by the end of the month. Psychologically it works better for me to have already banked that money in the savings pot, so then any spending on non-essentials can only be done by dipping into the savings. Depends if your instinct with the savings pot is to hoard it or to blow it I suppose.

So after payday I'd leave enough in the current account (the one with the overdraft, in case of mishaps) to pay for essentials, and bank the rest in the savings account. Then I'd know that the money in the current account was all spoken for, but I could spend it on things that weren't in the budget on the basis that I'd then have to replace the amount spent, from the savings account, as soon as I got home.

Then, instead of non-budgeted spending coming from free money, I'd immediately feel the impact of it on my savings and goals.

This is easy to manage because you just have to know, when spending any money, whether it was in the budget for the month, or whether it's an extra that now has to be covered. Of course it's up to you what counts as essential, but whatever it is, your budget is based on spending £X Y times a month on it, and if you exceed X or Y it's an extra.

Joe_Bloggs

@Cash-Strapped.T32

I am not against multiple current accounts especially if they have attached savings accounts. The record,per person, on MSE is around fifteen current accounts. I only have three. I also have a savings account that lets me pay bills via BACS.

Some say that the first million is the hardest to acquire. To be realistic saving for a house deposit is the hardest. If you have had to make sacrifices to make savings then you appreciate the ways in which you can fritter money away all the more.


From where I stand I still owe 35K net on the mortgage. So what I call savings is just offset debt that is earning/losing the small difference between my savings rate and my mortgage interest rate.

I will wish you luck on you perilous journey, I hope you are visible to even the most dozy road user.

J_B.

Cash-Strapped.T32

pqrdef wrote: »

So after payday I'd leave enough in the current account (the one with the overdraft, in case of mishaps) to pay for essentials, and bank the rest in the savings account. Then I'd know that the money in the current account was all spoken for, but I could spend it on things that weren't in the budget on the basis that I'd then have to replace the amount spent, from the savings account, as soon as I got home.

Then, instead of non-budgeted spending coming from free money, I'd immediately feel the impact of it on my savings and goals.

This is easy to manage because you just have to know, when spending any money, whether it was in the budget for the month, or whether it's an extra that now has to be covered. Of course it's up to you what counts as essential, but whatever it is, your budget is based on spending £X Y times a month on it, and if you exceed X or Y it's an extra.

Very nice point; I already do that to an extent, at least the multiples of 4x weeks on my budget & I currently know whenever I spend money whether or not it's budgeted for or not.


I like the thing about leaving in as much money as is budgeted for & shunting all the "excess" to one side - as far as I envisage it, my original idea was very similar aside from the psychological factor, if you will;


* In my original plan, I shunt the "budgeted" as you call it money into the new FD account, and use that for budgeted spending, I allocate a (flexible) amount to savings, and then the small "excess" resides in my main current account for the month where it can be called upon for extra-curricular spending, or not.

* Your version seems to cut out the extra current-account, and uses instant-access savings to store the excess away from the budgeted spending-account, again, where it can be called upon or not.


Hmm, good point - thinking about it both have their virtues;
Keeping the excess (I keep going on about this, by the end of month it probably won't be much in real life terms) in savings as you suggest means I earn some interest on it as opposed to it sitting in a current account until I next get paid.


Thing is your line of reasoning can be taken much further on the face of it; Considering that I use the internet every day at work & at home, the logical conclusion to your line of reasoning is to pare one's current account to the bone;

To transfer your entire (positive) balance into savings as soon as it's paid (leaving maybe £100 as buffer), to earn maximum interest for as many days as you can, and then to transfer funds back into your current account as & when you need it (on say a weekly basis) as you need to spend money throughout the month..
Kind of like drip-feeding your current account as you need it, but only by as much as you need plus a small buffer.

Hmms, I hadn't actually thought of that until now, it seems almost dastardly.. :cool:

Dammit now you've really made me have to think!

tellmeitsfriday

I added up all my direct debits, plus essentials, like food, petrol, £5 a week spending money, and I leave that in my current account.

Everything else is shuffled off to my instant access (meagre interest) account. At the end of the month all surplus in both accounts is moved to ISA.

It feels "naughty" to spend out of the savings account! I also shredded my cash card, so if I want cash I have to do a transfer... not difficult, but the minute or two doing it helps me decide if I really need to.

I try to never withdraw from my ISA... but if I have I have to

WOrks for me (nearly)

TonyMMM

Advice that made a difference for me years ago ..."Pay yourself first" (think it came from Alvin Hall on his TV money programme)

Work out a realistic budget that includes the amount you are going to save .. e.g. £250 per month and then on the day you get paid immediatley transfer that money to your savings account.

As others have said , the "I'll save what's left at the end of the month" approach doesn't often work, because the money usually gets spent.

Loughton_Monkey

As I have just posted on another thread, I use a monthly budgetting system that works. It is not magic at all. Just common sense.

You decide what you are going to spend in a year, borken down by month according to best information you know about renewal dates etc. And make sure the overall amount is reasonable.

Now here's the simple, but important bit. Each month, you review exactly the 'actual' versus 'budget'. If, you actually spent less, then you put the 'balance' into "contingency". If, however, you spent more than the budget, then you have to use the accumulated contingency to pay for it. Otherwise, you must reduce some of your budgets going forward (you decide which).

I never spent more in a year than I have assumed. I don't budget 'specifically' for savings, since it is taken as read that my income, minus my spending budget will be a positive figure, and that is my savings. If I end the year with a positive 'contingency' figure, then that's brilliant. That becomes savings too, and now we start a new year.

Good luck.

JodyBPM

We work on a similar basis to what you are suggesting, and it works for us.

We have a joint "bills" account, where a regular SO goes to cover all bills that are paid by DD. We transfer enough so that it would cover if ALL bills were paid EVERY month (which of course they aren't eg CT, water (only 8 months for my provider, don't know if that is the norm) plus our insurances are done on a 9 monthly payments basis). Apart from checking the money is there and the correct payments have gone out, we don't really touch this account.

We have a joint "spends" account, where we transfer a set amount to cover family food, family spends, general household stuff etc.

We have a joint online saver account, where we transfer a small amount each month.

We scoop any excess each month from the joint spends to the online saver. We scoop any excess annually from the bills account to the online saver. We don't touch the online saver unless its for a really good reason - new washing machine etc. We'd never ever dip into it just because we fancied a night out etc.

We both each have our own current account with our personal spends in each month.

And we have SO set up for the rest of our income to go to various savings accounts.

This works well for us, because we think hard about spending anything from the online saver, we try to budget within our spends account for any everyday extra expenses (smaller repairs, holiday spending, days out etc)

We almost forget that we have the "real" savings which hold the bulk of our money - we'd have to have run our spends account down plus our online saver before we'd even consider taking funds from real savings - (we've never done it yet, apart from paying lump sums off the mortgage!)

I found splitting "bills" from "spends" really helped us - in a way we are setting false limits, which make us think twice before spending! Before, I often used to feel we had a lot of money, which made us rather more likely to spend on unecessaries, but it was just because all the DDs hadn't come out!

We're fortunate that we are quite a healthy financial situation, but when we don't have any money left to transfer to the online saver from the spends at the end of the month, we feel poor! Yet we are sitting on 10s of 1000s in savings! Its funny how you can manage to deceive yourselves so easily!

sveika

I know many people hate Santander (including myself lol), but I do use Santander as it can work as an excellent easy access saving account but also has almost all convenience of a current account. The account I'm using is called preferred in-credit current account and the rate is 5% (for balance under £2500). The interest rate is much better than all easy access saving accounts that I know of. You can use it to pay your bills, set up direct debits, withdraw money from an ATM machine when you need it, etc etc.

So I don't see the need of keeping two instant savings account if you don't mind use Santander. I know their customer service could obviously be better!