If you have been following my recent posts you will realise that April is my money makeover month. I have looked at how to budget and how to save. But what about if you have no spare cash and you just need some tips to make your money go further.
A budget done correctly answers two key questions:
1. Do I spend more than I earn?
If you’re eating into savings or building up debts then it is likely that the answer to this question is a resounding ‘YES’. But it is important to get an accurate idea of how big the problem is. Our free budget calculator will help you assess where you are with your personal finances.
2. What can I afford to spend
Once you know how you are spending you can start to prioritize what you spend your money on. Again, our free Budget Calculator guides you on how to balance your finances. It has recommended proportions on how to spend your money and compares your spending habits to the recommended.
Improve your finances
Once you have answered the above two questions it is worth looking at a few tips on how to cut back on overspending. After all, everyone wants to get the most out of their finances so they can start doing the stuff they love.
Only you know where you sit with your personal finances. Only you can determine what is important to you. Only you can make decisions on where to cut back or reallocate your spending.
It is important to take a step back and look at how you are spending your money. If after doing your budget things don’t look too healthy, then below are some simple tips to help improve your finances and try to get you back on track again.
1. Balance your life
After creating your budget and allocating how much you want to spend on each area, it is essential that whatever you choose to spend your money on is worth it.
It needs to meet your objectives and not be stopping you from doing what you really want to do.
By knowing your goals you can make adjustments to your life so that you still do the things you want to do but don’t waste money on the things you don’t.
If you have a finite amount of money each month to spend on non-essentials then make sure they are something you really want. There is little point restricting yourself on things you love only to spend your money on something that you don’t really care about. However many people may tell you otherwise.
Try and work out what social engagements you really want to go to in the month. Work out how much you can spend on them and then go and enjoy them. In full knowledge that you have decided that they are worth the money.
Say no to the ones you’re not keen on, or simply can’t afford. No need to feel guilty about these. Make your excuses and move on.
It will be worth it in the long run.
Remember what you are working towards is to give yourself the freedom to follow your dreams. With this in mind you can decide what is worth doing and what isn’t.
This step is about making compromises to cut out what is not necessary but still having some fun while you do it.
2. Make small lifestyle changes
If you don’t want to miss out on the big events in your life then why not try and make savings on small lifestyle changes.
Small lifestyle changes can make huge differences. Have you ever really thought about how much that daily coffee costs. Or the takeaway treat every Friday. If you want to a quick way of totting up these costs check out TheDemotivator.co.uk to see the impact of small spending.
This tool showed me that cutting out a daily £6.80 coffee and sandwich saves me £1700 a year!
Apply this approach to all areas and you will be cutting back on overspending in no time.
3. Create multiple pots of money
Setting spending goals for yourself can help you realise where it is important to spend your money on and where it is not.
First make sure you have done your budget, ensuring you know how much you want to spend in each of the main areas.
The next step to make sure you don’t overspend in each of the areas is to set up separate bank accounts. The bank accounts will be used for each of the different categories.
What you are doing is creating lots of little pots of money allocated to different types of spending. These pots are only used for the category you have allocated to them.
Finally, set up standing orders/direct debits to feed the accounts each month with the amount you have allocated.
The bonus of this technique is that at any point it is clear how much you have available to spend. Knowing how much you have available is the key to preventing you from overspending.
A simple example of five accounts could be:
- Bills (including mortgage)
- Big purchases (sofa, car, kitchen)
- Savings & emergency fund
Whatever remains in your main account is the amount you have available to spend, as all the bills, etc. have been taken care of in another account.
4. Procrastination is good
From a productivity point of view procrastination is bad. Who wants to hang around for days, weeks, months, while you make up your mind on a decision.
But from a spending point of view procrastination can be a very useful tool.
By procrastinating over a purchase it means you are really thinking about whether this purchase is worthwhile making. This is a good attitude to have.
When making any purchase you should always ask yourself:
- Do I need this?
- Can I afford it?
- Will I use it?
- Is it worth it?
Only if the answer is Yes to all of these questions should you make the purchase.
Following this approach means no more impulse buys that you regret as soon as you get home.
5. Go cash only
Everyone is going cashless these days. But the problem with that is that you lose sight of how much you are actually spending.
If you are an impulse purchaser the cashless world is a godsend.
To prevent overspending why not get cash out and hide your credit and debit cards. You can see how much cash you have in your purse when you make a purchase. And if you don’t have enough you can’t buy it.
When you know it is a finite amount of cash to spend in a week your spending decisions will change. Handing over the cash is always more of a challenge to yourself then just tapping your credit card on a machine and forgetting about it.
By having your saving goals clearly targeted suddenly spending cash on something that isn’t so worthwhile becomes easier to say no.
This only really works for items that you buy on the go or specifically targeted shopping such as your weekly grocery shop. If you buy a lot of items online try keeping a running total somewhere close to hand so that you can see what you have spent that month. So that you can stop yourself when you reach your target.
Consciously spending in this way becomes a habit and is a sure fire way to stop you from overspending.
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