It's really hard

MrsSave

enthusiasticsaver wrote: »

When money was tight I did not use the credit card as paying it off in full the next month meant we were short of money then and tempted to use the card again the following month for living expenses. I do not think anyone who is on a tight budget should be using a credit card due to the way it throws budgets out when you have to pay it off the following month. Only exception is large item on 0% divided up over interest free period. We always had a rule in that only one item on interest free at a time. Everything else had to be saved up for.

I think it depends on how 'in control' of things people are. I use my Tesco credit card for the majority of my purchases each and every month. What I've done is set up a separate account, and as soon as I buy something on the credit card, I update it as spent on YNAB, and then move money from my current account to this other account so that when the bill comes in I've got all the money sitting waiting. It doesn't affect next month's budget at all.

It does mean being completely on top of things and making sure that there's no temptation to buy things that aren't part of that month's budget. So far it has worked for us, and we then use the points for days out/meals out. I'm not sure it would work as well for someone at the start of their debt free journey or someone who wasn't on top of their budget.

Sanctioned_Parts_List

MrsSave wrote: »

I think it depends on how 'in control' of things people are. I use my Tesco credit card for the majority of my purchases each and every month.

Exactly.

But the only way it works is to have cast iron control over every aspect of your spending, track every account and every expense and be just a little bit obsessive about it.

Apart from the market, which is cash only*, everything that we can spend on Amex, goes on Amex, and being a charge card it's paid automatically in full every month (because the penalty for not doing so is too much to contemplate). For anywhere that doesn't take Amex, we have another Visa credit card that they will take, and is also paid in full. The Amex takes its DD on the second of the month, and the visa on the eighth.

As I've mentioned elsewhere, we don't budget. I track all household spending meticulously. Everything goes into KMyMoney** in mind-numbing detail - all debts, all savings, all spending. Takes about 5 minutes per day, but getting it set up in the first place took a solid weekend of manually entering a year's worth of bank and credit card statements - because the power of the software only comes out when it's got a good large set of data to analyse. (That then shone a light on all the waste and allowed us to take an axe to our spending.)

Because of that, I can see that this month we're overspending on both Amex and Visa as our relocation-to-the-UK costs bite. But I can see that all that will happen is that I will have to pull some money out of a buffer account for a few days between one DD being taken and some expenses arriving in case a utility company with a history of taking their DD on arbitrary days does so again. In the meantime I can pick up the pace on freelance work to try to make up the difference.

That's the advantage of 3 weeks notice.

If I didn't track and analyse spending like this, then using credit cards would be bad, wrong and dangerous.

* When accounting for cash, I track cash withdrawals and treat them as if the whole value of the withdrawal is immediately spent.
** I don't use YNAB because, well, I don't budget, I like free software, and I don't see that it offers anything that free alternatives don't.

PS: I think that might have finally answered the question, "How do you guys do it?"... at least in this little corner of the world

EssexHebridean

That's an interesting take on it SPL - not sure I'd have the patience or the self discipline to keep it up mind you! I do like a spreadsheet - our mortgage OP's were all input into a spreadsheet so we could instantly fiddle with figures and see the impact of a few £'s here and there extra paid over...that ability to see what effect we were having was what drove us on, it really did make a difference seeing how much we were saving over all, as well!

I'm not a fan of chargeable budgeting software either I have to admit. It seems totally counter-intuitive to me to pay for something to help you save money, but each to their own and if it works for people then good for them.

As for CC use - a cashback card can be a wonderful thing used correctly. If you're on a tight budget though you really do have to keep a tally of every penny that goes on it - ideally paying off each item as it hits the card account. That way you still earn the cashback but don't risk things getting out of control. If I was starting from a point where my outgoings were exceeding my incomings though I wouldn't even contemplate using the CC - I'd close the account, as the temptation in a tight month would just be too great.

Sanctioned_Parts_List

EssexHebridean wrote: »

That's an interesting take on it SPL - not sure I'd have the patience or the self discipline to keep it up mind you!

5 minutes per day isn't such a chore. I dealt with today's receipts (2 taxis, a cash withdrawal and a swift pint after work) while waiting the 2 minutes for dinner to warm up in the microwave - such is the joy of commuting. I originally thought I'd "use it to get on track" and then hopefully would have developed good instinctive habits and could stop with the tracking. In fact, every time I've stopped putting the numbers in the computer, our spending increases by 50% overnight.

It seems knowing what I have today, tomorrow, and at the end of the month is the spending equivalent of bromide.

EssexHebridean wrote: »

I do like a spreadsheet

I do, too - our "budget" such as it is, is a spreadsheet 3 columns wide and 20 rows long, that details our monthly income, scheduled payments and "everything else" allowance. That sets what goes into the buffer account, which happens on pay day. I'm quite relaxed about using the buffer account, provided our 3 month moving average is roughly the "everything else" allowance.

EssexHebridean wrote: »

I'm not a fan of chargeable budgeting software either I have to admit. It seems totally counter-intuitive to me to pay for something to help you save money, but each to their own and if it works for people then good for them.

I'll never say "don't use it"... but alternatives do exist.

EssexHebridean wrote: »

As for CC use - a cashback card can be a wonderful thing used correctly. If you're on a tight budget though you really do have to keep a tally of every penny that goes on it - ideally paying off each item as it hits the card account. That way you still earn the cashback but don't risk things getting out of control. If I was starting from a point where my outgoings were exceeding my incomings though I wouldn't even contemplate using the CC - I'd close the account, as the temptation in a tight month would just be too great.

This was one of the longer discussions my wife and I had - whether moving to a charge-card, i.e. post-pay spending was a good idea or not. Advantages were air-miles (we use them, being a fairly mobile family) and early warning of expensive months, disadvantage was risk of spending beyond our capacity to repay.

We'd been tracking through the computer for close to a year before I finally took the card. In that first month, out of fear, we were positively miserly and over-saved, which made the transition easier.

MrsSave

I think that this is surely showing that there are many different ways to work at becoming debt free, and no 2 people will agree 100%. That's completely fine, though, as long as people are doing what works for them.

Hayley, it's ok to dismiss some pieces of advice, but remember most people posting will have been in this situation for a long time and have worked hard at becoming debt free/mortgage free/decreasing debt so can see what things aren't likely to work as they've been there themselves. It's up to you how much you take on board and how many changes you make.

EssexHebridean

How are things going Hayley?

[Deleted User]

I did, hopefully it'll be gone soon.

Hayley33

Only now seeing this! Pleased to report back its march im still out of my overdraft, I'm trying my best to live within my means :j

I'd love a lottery win though things are soooo expensive!

armchairexpert

Hi Hayley!

With the SOA, one thing strikes me. Let's assume that all of your bills are as cheap as they can be, and that's absolutely fine, don't post them up.

But you're lumping all of your non-bill expenses into "spending". So that includes everything from children's clothes, school costs, Christmas obligations, MOT to takeaways and haircuts. This is where the spending diary is really important.

I'm a big YNAB fan, and I won't preach about it here, but one thing it does is to separate those out. You said upthread that you keep getting hit by big expenses, like new furniture and car - but if your budget separated out those expenses from the day-to-day indulgences like a takeaway, you could see if you could justify the latter this month.

For example:
I know that my kids' school fees are due annually, and it's about $1000. That's $80 a month that I can't spend on things I don't need, because I will need that money later. I also know that the birthday parties my girls get invited to, plus their own birthdays (including throwing a modest party), plus my husband's birthday and mine and various relatives, add up to about $1200/year, so that's another $100/month I can't spend on things I don't need. Things like the MOT, or replacing a whitegood, or annual school fees, aren't 'emergencies' or even unexpected expenses; they're part of your budget.

For the next three months, I'm unlikely to need new clothes for either of my girls, but that doesn't mean that my [income - bills and rent and groceries] is free for me to spend, because then I'll hit a new season and my eldest will need a whole bunch of things at once.

If your budget is merely "things I absolutely have to pay every month" and "everything else", you're always going to spend money on the wrong things and then get blindsided by the things that come up. If 300/month is what you have left over after bills, phone and petrol, you absolutely do NOT have 300 a month for bill paying, because you're also buying clothes, presents, school costs and food (as per your original post). A spending diary might show you that in fact, when you've thought of everything you have to spend, you only have 20 a month left over.

itchyfeet123

armchairexpert wrote: »

If your budget is merely "things I absolutely have to pay every month" and "everything else", you're always going to spend money on the wrong things and then get blindsided by the things that come up.

That's incredibly insightful! As a single person with a decent income, I've never set up a budget for discretionary expenses. I know how much my fixed expenses are and I arbitrarily divided the rest of my income into an amount for saving and an amount for spending. The spending amount covers everything discretionary -- groceries, transport, entertainment, clothes, etc -- but, as you point out, some kinds of spending, like clothes or a weekend trip -- cost £0 most months but £lots in one or two months. It would certainly be less painful, and probably curb some extravagance, to set aside a planned amount each month instead of living on lentils or raiding my savings when it's an expensive month.