" /> Why can’t I save money? – MoneyMuddle

Why can’t I save money?

You can!! You just need to find what works for you without making you feel restricted or deprived. There are loads of apps and ways to structure your money that will give you the freedom to enjoy your life (within reason!) and give you a happy buzz from paying the future you though savings and investments.

“You can have a Masters degree in making money, but you will still wind up broke if you have a PhD in spending it.” ―Orrin Woodward

Having a Budget             

What springs to mind when you hear this word? For most people they squirm a little, try avoid eye contact and try desperately to change the subject (even inside their own head!).

Often the very word budget it’s akin to the word diet, it conjures up all manner of restrictions and constraints.  Similarly if this kind of prescriptive restriction worked for us all, none of us would be overweight or broke!

The nice difference between budgeting and dieting is that all the weight (debt) doesn’t pile back on the second we look at a cream cake. Every penny saved is still saved.

If you want to be told how to restrict and segment your spending then there are LOADS of books and apps available on budgeting, I’m personally not overly fantastic at being told what to do or having my choices restricted in this way but there are many advocates for budgeting and I do, to some extent see their point and apply some of their principles so I suggest that do some research and click through the links in the final chapter, some of it may resonate with you really well.

How you chose to go about budgeting really depends heavily on your money mind-set and your objectives. Are you trying to dig yourself out from under a mountain of debt or do you just want to feel more comfortable with your future planning? Be clear about your end game before to try to make a budget. Also, don’t forget, this is your budget and if it’s not working for you; make a new one, just please don’t bin the whole stupid idea at the first hurdle.

If you have a passionate dislike for restriction, let’s try to reframe your budget gremlins and see if we can look at it like a long term plan for the money coming in and going out; more of a tool for visibility than a list of can and cant’s.

The reason I think that many people struggle with a budget is that life doesn’t tend to follow the plan, that said, spending money on stuff we don’t need and will doubtless end up in the attic / charity shop / garage / bin (insert relevant place of invisibility here..) in the not too distant future is just silly.

I find that if every time I go to buy something I ask myself if I REALLY need it, I mean really NEED not just want it, and if I had to part with cold hard cash for it, would I? This way I find that that I can drastically reduce what leaves my bank account and what clogs up my drawers. I don’t think I could take it to the extremes of the journalist Michelle McGagh who documented her yearlong experiment with zero spending, but I can see that if spending is a bit of an addiction for you, this level of cold turkey can be a real eye opener.

Whilst we are on this subject, if your only restrictions on the amount you spend is what you have then you may have to do some soul searching with this and understand what needs you are trying to meet with the “stuff” that you buy. Hopefully looking closely at what you are spending on will help you with this as will replacing those material desires with new stronger ones aligned to a financially free future.

So; the first step is to look at where all your money is going. There is no point trying to design a solution when you don’t know where the problem is!

First of all, pull all your spend into one spreadsheet. Take all your current accounts, credit cards, paypal account etc into one sheet and decide on how you want to categorise your spending. Do this over a 2-4 month period (some books recommend 90 days, but choose what works for you) to start with as it might feel a bit overwhelming if you try to do a whole year at once, (it’s also really damn scary!)

I’d suggest the following categories to start with and split them into spend that you can immediately control and stuff that’s either static or needs a longer term plan to get it reduced.

Immediate control spend

  • Meals out
  • Food shopping
  • Ebay / amazon /web sites (spending on books and “stuff”)
  • Entertainment (shows, cinema etc)
  • Take aways (just eat and lunchtime quick food options)
  • Gaming
  • Booze?!
  • Cash……?!

Longer term or static spend

  • Utilities (gas, lecky, water, council tax etc)
  • Mobile Phone(s)
  • Car payments (include tax and insurance)
  • Mortgage
  • Credit cards
  • TV and Broadband (include Netflix etc)
  • Charity
  • Insurances
  • Subscriptions

According to the office of national statistics report, the average weekly expenditure in England for the financial year ending 2018 was £572.60. The breakdown for this in the report is a little generic and changes dramatically based on age and location in the country so there is quite definitely no right or wrong here, but it’s an interesting guide.

Monzo is a new kind of bank account which amongst other things analyses all your spend for you. I have had it highly recommended to me but I have yet to try it so wouldn’t want to do a full analysis on their offering right now, however they have produced some statistics on their customers spend throughout 2018 which you may find interesting.

Personally I feel that the particular demographics of people that would use this new method of banking will skew the results a little and will not therefore be truly representative, but it’s interesting non the less.

https://monzo.com/

If you are really serious about reducing your spend, test yourself for 1 month with the stuff you can control right now. Look at how much you’ve spent in each of these areas and really think about what value that added to your life. Were you just buying it to make yourself feel better because you needed to escape from your reality in some way? Because you really hate your job and need a reward? Because you deserve it? Or is it just habit that all these hundreds of pounds (potentially) just disappear every month? Btw, I’m not saying that you don’t deserve the stuff that you’re buying; just that maybe you deserve to be debt free and in a position of freedom to be able to make the life choices that you really want to, that’s all.

Either way, take a bit of time on this one and just look at the total spend and imagine how that could have been less. How would you feel if you had NOT spent that money? If the word that comes to mind is “deprived” then maybe we have a more serious issue here than just lack of knowledge where managing finances is concerned! You are really not alone with this, so don’t panic, just learn some more little tricks and make a decision to act on a few of them, the rest will come.

Your particular high spend areas might be totally different from those listed above, I apologise if I’ve missed them off but I think you get that the general point here is just to know in real terms with actual £ next to it what’s going on. Take a long hard look at these numbers and decide what you think you SHOULD spend in these areas.

Once you’ve added up certain spend areas such as the lunch runs, take always, meals out etc, look at the total monthly spend and think about what you could do with that extra money!

Be as hard or as easy on yourself as you like but bear in mind that if you have debt that you need rid of because you’re are PAYING for it then cut as much as you can from this spend list, even if it’s just in the short term, remember that paying and extra £500 of a card today means a boat load of interest that you won’t pay this month and next and next etc.

Designing your “budget”

Assuming that you have now looked at your spend in each category and decided what you will spend going forward you should now have an amount of extra cash that will either be going towards bad debt or an investment / savings plan of some kind.

Personally, as stated in the chapter on credit cards, I have 1 card dedicated to day to day spend that gives me cashback at the end of the year and I have a limit on how much I think my monthly bill should be because it is PAID IN FULL by direct debit every month. I find this quite an easy way to budget and not get spend mixed up with bills.

So let’s say you have estimated that you will make the following allowances:

Food allowance (£85 per week)
Petrol allowance (£30 per week)
Spend allowance (£25 per week)

I realise these figures might be WAY out for you but it’s really just to demonstrate a point.

So, based on this I estimate that my monthly credit card bill will be £560 (based on a 4 week month) but I will try to keep it under that if possible. You can usually download apps to track spending on whichever card you choose for this purpose and you can often set up weekly texts to let you know your balance which can really help you stay in line with your plans.

A simple version of your budget might now look like this:

Date In Out Balance Notes
01/01/2019 £2,000.00 £2,000.00 Wages
01/01/2019 £395.00 £1,605.00 Mortgage
01/01/2019 £12.37 £1,592.63 TV LICENCE
01/01/2019 £350.00 £1,342.63 2nd current account
02/01/2019 £87.00 £1,255.63 Energy Supplier
03/01/2019 £142.00 £1,113.63 Council tax
07/01/2019 £48.50 £1,065.13 UNITED UTIL PLC
07/01/2019 £85.00 £980.13 Insurances
07/01/2019 £250.00 £630.13 Savings
08/01/2019 £17.14 £612.99 Mobile Phone
20/01/2019 £7.99 £605.00 Netflix
23/01/2019 £45.00 £560.00 TV and Internet
25/01/2019 £560.00 £0.00 Allowance for the spending card

What I have not mentioned so far is your emergency budget. If you have read any money books at all, they all insist that you have one of these so that you don’t panic and spend money on “bad debt” to survive. This budget is for surprises, such as Christmas, birthdays, car tax, and car repairs. Ok, not all strictly surprises but they are things that end up getting put on a card because the rest of the budget is so tight there is no wiggle room.

For this I use the 2nd current account that pays interest on the balance. Quite a few accounts these days give you 3-5% on the balance with a minimum pay in every month. This is free money and instant access! I also use my 2nd account for all my credit card payments so I have a clear amount that leaves my account every month which covers all the minimum payments on my 0% cards and the balance that’s left in there is earning money! The other good thing about using the 2nd account is that you don’t see and spare cash hanging about in there, it’s left your main account and has been technically “spent”.

One other point to mention here is the savings, treat these like a bill that has to be paid, this is a payment to your future self and must be prioritised where ever possible. This should also be a stretch, every penny that you can eek out of your income into some form of savings or investment that is EARNING you money will compound at a shockingly fast rate once you get going.

The Latte Factor

Just to give you a small window on how every penny really does count, think for a second about the money you might spend mindlessly during the working week. Let’s say for example that you get a coffee on your way into the office and get a takeaway lunch every day (this is called in many finance books the “Latte factor” – look it up, you’ll find LOADS of content on this). On average the coffee might cost you £2.50 and the lunch “meal deal” about £3.50, so that’s:

  • £6 per day;
  • £30 per week;
  • £120 per month (ave)
  • £1,440 per year (If you work 48 weeks of it)

Not convinced yet? If you invested that money into a high (ish) interest investment account at 5% you’d have almost £6,400 including compounded interest in 4 years’ time. Or, if you have debt that you are paying 18% interest on, your daily indulgence, however minor it feels on the day could cost you almost £8,500 in the same 4 years!

There are even apps now where you can invest small amounts of money from your phone so you could open a “non frivolity” account so that every time you decide NOT to spend money on something you don’t need, put that same amount into your investment via your phone. Moneybox is one such app that I found recently but I haven’t used it enough yet to give you a full review: https://www.moneyboxapp.com/

[If you have any debt of course, take this out and pay it off your high expense card every month if you have not been able to switch to 0% or low interest debt]

So in this example, every year you are spending £1,440 of post tax money on your Latte factor. That’s like someone coming to you at work and saying “the company have decided to give you free coffee from your favourite coffee shop every morning and pay for your lunch but we will be taking £1,800 off your annual salary, is that ok?” I’m pretty sure everyone would say no!

I’m not really saying that you shouldn’t do these things if you want to, just be aware of the impact this is having on your long term finances. If you want to carry on spending your money the way currently do, that totally fine, it’s your money (I hope) but just be aware that it’s so much easier to not spend than it is to get more! Especially when more earned money just attracts mores tax!

I hope that this view of things might help you when it comes to shaving the unnecessary beard off your other expenditure and even though it’s just a few £ here and there it has the potential to really add up.

As I’m a huge fan of not reinventing the wheel and as the good people at MSE have developed a really detailed self-calculating spreadsheet to help with your budgeting, I strongly suggest that you make use of it.

https://www.moneysavingexpert.com/banking/Budget-planning/#bplanner

The key point here is not only to not buy stuff you don’t need but also to know where every penny is going and make sure you’re getting the absolute best deal available and of course avoiding as much in interest charges as humanly possible. I hope by now that you can see how the smallest changes really do make a massive impact on your longer term financial future.

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