Money can be a bit of a thorny issue for many people at the moment, what with the state of the economy and more of us having to fall back on savings to stay afloat.
If you feel as though your relationship with money could do with a bit of a reboot, one or two of these tips might help you set things back on a firmer footing.
Go Back to Basics
Whether you’re running a business, a household or juggling investment portfolios, basic bookkeeping is what helps you know exactly what your money is doing and where it’s going.
For household budgets, and even very simple freelance accounting, a notebook or spreadsheet is all you need to make a start.
You’ll need four columns on your sheet, headed Date, Item, Cost, Balance. Take your current balance from your bank statement (or mobile app) to give you an opening balance to work with.
Now, whenever you spend money or make money, record the details:
- Date – when the transaction happened.
- Item – what you bought or sold (include salary here too).
- Cost – what you spend or what you made.
- Balance – add or subtract your cost amount and write the new total here.
This, obviously, is very basic, but it’s a good starting place if recording income and expenses is new to you. It’s not enough if your financial affairs are more complex, if you’re tracking investments, managing payrolls or a VAT specialist, for instance. In those cases, professional accounting services can make sure your money is working efficiently.
At the same time as tracking every day like this, don’t forget to regularly consult your bank statement to make sure you’re including everything. Forgetting a direct debit could mean your tracker is showing more cash than you actually have available.
Making Sense of the Numbers
By the time you’ve been tracking your money for a couple of months, you’ll have quite a financial record to look back on.
Now you can start seeing how basic bookkeeping can help you sort out your finances and get some control back.
Look for patterns in your spending. For instance, how much are extra trips to the supermarket, outside the weekly shop, costing? Because it’s so hard to pop in and just buy the one item you actually wanted, the cost of these side trips might surprise you. Making a meal plan and a shopping list could remove the temptation (or the need) for extra shopping through the week.
You can do the same exercise with all sorts of categories of spending, such as travel or commuting, insurances and utilities, repair bills, TV and Internet, hobby purchases. The list is almost endless.
Once you see exactly where you’re spending, how often and how much, you can make informed decisions about whether to change things.
Start a Savings Plan
Whether you save through a bank account or just drop change in a piggy bank, start building the habit of putting some money aside.
Separate bank accounts are a good idea, with most of the main banks offering basic accounts that are simple to open. Digital-only banks work well too, such as Monzo or Revolut. Moving money between accounts is quick and easy, so there’s not much excuse to avoid tucking a few pounds away for rainy days or holidays. The downside is low interest on savings, but they’ll get you started with tucking spare funds away.
Once you get a firm grasp of your spending habits and you’ve figured out where you can save, set up a standing order to move money into your savings account so you don’t even have to think about it.
But before you get to that stage, don’t be too harsh on yourself if some months you don’t manage any savings. Just start again the next month as if nothing had happened, tracking money and looking for ways to trim expenses.
Having a tight grasp on your money, whether you’re quite comfortable or you’re struggling a bit, is mentally liberating. You don’t have to worry and wonder. You know exactly where you stand.
And knowing that, you can take charge to build a better relationship with money.