Kick That Serious Spending Habit...Today!
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This article was first sent to Fools as part of our 'Your Finances In 2012' email campaign.
If you're like me you may have wondered why, every now and then, your money seems to simply vanish into thin air even though there's still a week to go until payday. If you don't know what I'm talking about then lucky you, but believe me it's a long and tedious week.
What's more, everyday items seem to be getting more and more expensive, putting greater pressure on our finances. Indeed, David Kuo predicts rising taxes and inflation over the next five years could lead to a significant budget shortfall for the average household. If this is the shape of things to come, it looks like the colossal mountain of debt we have already collectively amassed is going to get even worse.
But it doesn't have to be that way. A little smart budgeting can go a long way. Here's how:
Keep a spending diary - True, this isn't a revolutionary idea but it really is the best way to get a handle on your spending habits. Just as people who are trying to lose weight are encouraged to record everything they eat, do exactly the same every time you put your hand in your pocket or whip out your plastic.
I promise you'll be amazed by the results. I did this myself last month to solve the ‘where does my money go' mystery once and for all. I've never considered myself to be particularly extravagant, but I must admit I was pretty dismayed to discover I'd shelled out a grand total of £539.77 - and that was just by the end of week three! And I'd be lying if I claimed it was all sensibly spent, far from it, in fact.
It may seem like a hassle but trust me keeping a spending diary is an excellent way of identifying where you spend - and waste - your money.
Figure out your shortfall - As well as looking at your day-to-day expenditure you also need to compare your income against your total outgoings including your mortgage/rent and household bills. The easiest way to do that is to use a budget calculator like this one from the Financial Services Authority (FAS). Use your spending diary to help you work out how much you spend on socialising and other leisure activities.
The FSA's calculator will tell you the percentage of your income you spend on different items. In my case I spend 40% of my income on household expenses and almost 22% on financial products including paying off debts, savings and life assurance.
Draw up a budget - If you find you've got more going out than you've got coming in, then you'll need to make some changes to your budget. If you spend say, 30% of your income on socialising, consider trimming this down to 20% and enjoy some inexpensive nights in instead. Remember to make allowances for one-off costs such as holidays, Christmas and birthdays, car maintenance and so on.
Save money on your large expenses - Some of your expenditure will be set in stone such as your council tax payments but there's plenty of ways you can make savings in other areas. For many of us, our mortgage is our biggest single bill so it makes sense to consider remortgaging to a better deal. An average borrower could easily save £100 or more a month. Even if you don't need to trim back your budget, remortgaging makes classic Foolish sense, so visit The Motley Fool Mortgage Service to see how much you could save.
You should also check out whether you could reduce your gas and electricity bills by switching your utilities suppliers.
Save money on your smaller expenses - Is your rip-off mobile phone contract about to end? Do you pay for an expensive Sky package you hardly ever watch? Do you fork out for a gym membership but never actually go to the gym? Stop wasting money on these things now.
And you can find more ways to help get your budget back on track on our money saving tips homepage.
Good luck!
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