How to get back on my feet with my finances

ledge97

Hi, I'm after some help and advice. Since covid I've found it hard to get on top of my finances. I used alot of my savings through lockdown to make sure bills were paid and finding it difficult now to get back on my feet with budgeting etc. 

Being self-employed, the savings I had, although not alot, was essential as it was a safety net to fall back on. Looking back I've realised that I was spending alot of money on rubbish, but never realised the impact it had on my finances untill now. 

Now I feel like I'm living week to week and just making sure bills are paid, but if I'm honest I'm still lacking a bit of discipline when it comes to saving money. 

So I'm just after a bit of guidance really as I dont really know where to start.

blue.peter

Here are a few suggestions. I'll phrase them as imperatives, but please do treat them as suggestions rather than instructions. Use them or ignore them as you see fit. They're based on the way that I work. I've found it successful for many years.

1. Get a personal finance management app. Free ones include MoneyManager EX and Microsoft Money. (I use, and recommend, AceMoney, but that isn't free.) Use the built-in functionality to look ahead and see how much money you'll have in your account at any given time until you next get paid. (You'll have to make good use of the scheduling option to record expected future payments such as council tax, energy, telecoms, credit card bills etc. for this to work.)
2. As you get paid, make sure that there'll be enough available in your bank account to meet those bills. Hold back a bit of cash for ad hoc spending - how much will depend on the way that you use cash, but I find that I only need to keep a small amount available. Put any and all surplus over the amount needed into a savings account as soon as you're paid.
3. Put as much of your spending as you can onto credit cards. Food, entertainment, petrol/diesel, insurance, holidays... everything. Set up a DD to pay your credit cards in full each month. This will not only defer the actual payment, but also allow you to include the spending in your next month's budgeting.
   
4. If, and only if, there's a shortfall in your bank account predicted, pull enough out of savings to meet that shortfall before it arises.
5. I note that you're self-employed, so I guess that your income will be less regular than a salary or pension. This'll mean taking a bit more care over the amount available in your bank account, but I see no reason why the principles I've set out shouldn't still work, albeit with a little adaptation.
6. You might find it helpful to operate a second bank account specifically to pay DDs and suchlike, and to fund it each month from your "main" account and/or savings. (I found this approach helpful in the late 1980s/early 1990s, but that was when I had monthly income paying quarterly or half-yearly bills, and needed to do a bit of smoothing.
   

ledge97 said:

Looking back I've realised that I was spending alot of money on rubbish, but never realised the impact it had on my finances untill now.

I can't really help with this bit, except to say that you'd better learn to think "do I really need this?" before buying anything.

blue.peter

PS: in relation to your self-employment, maybe it'd help to have another account into which all of your income goes. You could then use this to pay your main account a regular monthly income and also to hold some back to pay your tax. Anything left over can, again, be paid into your savings. (I'm thinking that a bit of income smoothing might be helpful.)

MovingForwards

I use a spreadsheet to budget. Over the Christmas holidays I work out my annual budget and fill in all my sections for the 12 months. Every outgoing has a section, even the ones I only use a few times a year. That way I can see how much I can save each month. I keep a note of my current credit balance too.

When a bill comes out or I spend, I update the spreadsheet and let it auto-calculate what's left. 

On another spreadsheet I have my savings and work out how much is going into each account. 

I run a current account for my wages / bills, another one holds my emergency fund in case I need a plumber etc, the third one is my home insurance, car repairs and insurance pot.

My savings accounts each have a specific purpose eg home upgrades, mortgage emergency fund for loss of job, another emergency fund to pay bills / buy food in case I lose my job, communal repairs and maintenance pot.

As I've mentally allocated the pots to a specific purpose, it's not my fun money to spend.

Although it's a monthly budget I work with, I break my food budget into how many weeks I have before payday again. Sometimes my £200 is split into 4 weeks when I can use £50pw, other times it's 5 weeks.

Originally I paid cash and would only take out a weeks money, if I spent it all in a day tough I had to wait; I never did, but also would take less out the following week of I had money left from the previous week. Handing over cash is harder to part with than swiping a debit or credit card.

I personally don't like putting spends on my CC as I'm borrowing money I've not earned, but I also know that way works for a lot of people.

If there's something I want to buy, I don't do it straight away. I tend to watch it (eBay) and can weigh up whether I do want it. Sometimes I think about how many hours I have to work just to afford it.

To get in the swing of saving again, do the 1p a day / 52 week savings challenge. Open a savings account with a different bank, then you don't see the money when checking your income balance.

Lastly, try and separate need from want.
- You need a roof over your head, food in your belly, light, heat and running water.
- You want a takeaway, beer, clothes (unless worn out then it's a need), CDs, a TV etc.

All you can do is keep trying different things and one will work for you.

ledge97

Thank you for replying, it means alot. I'm going to go through my finances the weekend and try some of the things you've suggested 👍

blue.peter

MovingForwards said:

I personally don't like putting spends on my CC as I'm borrowing money I've not earned, but I also know that way works for a lot of people.

That's fair enough. I can understand that attitude - it's exactly the way that my grandfather used to think. Obviously, I'm one of the people who finds that credit cards do work for me, but I fully accept that they do need to be treated with a fair bit of caution. It's the "good servant but poor master" thing, isn't it? This is why I made explicit mention of setting up a DD to pay them in full each month.

blue.peter

ledge97 said:

Thank you for replying, it means alot. I'm going to go through my finances the weekend and try some of the things you've suggested 👍

I fear that it'll take you a lot longer than a weekend to find a system that works for you. Whatever you do will take a fair bit of effort initially. It will eventually become routine, though.

Very best wishes with it. I do hope that we've been able to give you some useful ideas. Remember, the only right method is the one that works for you. There is no wrong approach other than the one that doesn't work for you. I don't mind if you end up doing things completely differently from me. Different people will have different approaches - as you can see from my response and MovingForwards's.

blue.peter

MovingForwards said:

Lastly, try and separate need from want.
- You need a roof over your head, food in your belly, light, heat and running water.
- You want a takeaway, beer, clothes (unless worn out then it's a need), CDs, a TV etc.

Hard agree. This is exactly the way that I think about spending.

You also mentioned your very detailed spreadsheet. This might well be helpful to other forum users. Have you considered making it available as a template (i.e., without any numbers included) via Dropbox (or another file hosting service)? That'd be a very nice thing to do.

MovingForwards

@blue.peter I'm not that tech savvy and only work off my phone.
Usually I just message an example of it to people, with directions of how to set up auto-calculate 🙈

blue.peter

MovingForwards said:

@blue.peter I'm not that tech savvy and only work off my phone.
Usually I just message an example of it to people, with directions of how to set up auto-calculate 🙈

Ah. Fair enough!

MovingForwards

blue.peter said:

MovingForwards said:

@blue.peter I'm not that tech savvy and only work off my phone.
Usually I just message an example of it to people, with directions of how to set up auto-calculate 🙈

Ah. Fair enough!

I can look into it though, but won't make any promises.