Did you know that setting aside just one morning could result in thousands of pounds more in your pocket over the next 12 months?
With Brexit dominating the news at the moment and living costs potentially set to rise, it certainly wouldn’t hurt to look at ways to reduce your expenses and build up a savings buffer.
As a financial planning business, we wanted to share some of our thoughts in this article on:
● How you can start setting a spending plan.
● Ways you can reduce some of your outgoings.
● Suggestions for clearing costs incurred by debts.
● Ideas on how this money could be put to better use, both short and long-term.
Before we get started, please note that this article is for information purposes only. It does not constitute financial advice and should not be taken as such.
For financial planning and advice about your own personal goals and situation, please get in touch to speak with us.
Setting a spending plan
An important first step to improve your savings and spending efficiency is to take stock of what you earn, how much you spend and what you spend it on.
The best way to do this would be to record your spending in a notebook or smartphone app, to determine your average monthly spending. Most of us are not that organised, however, so you might need to look at your bank statement for the past thirty days and go from there.
You will not know how drastically you need to rein in your spending until this picture is clear in your mind. Here are some obvious expenses to look at:
● Mortgage payments & household bills (e.g. gas, electricity).
● Mobile phone bills and broadband.
● Food bills.
● School fees & childcare costs.
● Car & transport costs.
● Subscriptions
● Debts & finance payments
It can be helpful to divide your expenses into different categories in a similar way to the above, as this can really help make your estimates more accurate.
Suggestions for reducing costs
There are literally hundreds of ways you could potentially reduce your outgoings. Here are just a few suggestions for you to consider:
● Check your Council Tax band. Many people are in the wrong one without knowing it. Since this tax goes up about 4.5% each year, it’s worth making sure you are not paying more than you should be.
● Check your broadband. Some people pay over £600 a year by just staying with their current provider, rather than taking advantage of promotional deals which can bring your bill down to as little as £12 a month.
● Take a hard look at childcare. The equivalent of one parent’s wage can be entirely devoted towards childcare costs, so it’s always a good idea to look at whether potential savings can be made here. For instance, are there any free summer holiday activities you can take advantage of? Does your employer offer any help with childcare costs which you are not using?
● Direct debits. This is another huge area where people’s money disappears without their noticing. Whether it’s a £40-per-month unused gym membership, or unused subscriptions to online services such as Audible and Spotify, you could save over £1,000 over the course of a year just by making some sensible cutting decisions here!
Debt-cutting ideas
Clearing a high-interest debt quickly can be one of the best ways to save money over the longer term. Leaving credit cards unpaid and building up interest, for instance, can easily amount to hundreds of pounds per year.
However, cutting your outgoings isn’t just about addressing the obvious debts such as credit cards and personal loans. It’s also worth taking a look at your mortgage, which is likely the biggest debt you will have as a homeowner.
Remortgaging your home, for instance, can sometimes open the door to a lower interest rate and reduced monthly mortgage payments. This frees up some extra cash in the short term, and also potentially save you tens of thousands more in the form of reduced interest down the line.
Putting money to better use
Hopefully, by this point, you will have already identified some areas where you could save hundreds or even thousands of pounds per year through careful financial restructuring.
What, then, should you do with the extra cash now sitting in your account as a result? It completely depends on your unique circumstances and goals, but here are some ideas that everyone should consider:
● Think about building up an emergency fund. Ideally, this should amount to between 3-6 months of your living costs. Not only will this help keep you afloat in the event of an expensive, unexpected expense which could otherwise plunge you into financial trouble (e.g. covering the costs of a sudden broken boiler).
● Take a look at your pension. Would it be worth contributing more of that extra cash towards your long-term future? Many people are just putting as little as 3-5% of their salary towards their workplace pension scheme, which is unlikely to cover your lifestyle in later life on its own (even when combined with the state pension). Putting even just £50 a month more towards your pension could result in thousands more to support you in later life, when you retire.
● Consider investing. It’s easy to spend extra money on things which cost you money – such as a new car, or a motorbike. There’s nothing wrong with treating yourself from time to time, but what if you spent some of that instead on things which could actually make you money (i.e. an asset)? For instance, perhaps you have a goal to save up for a deposit on a property within the next 10 years. One option would be to build up some saving towards this goal within a Cash ISA account, but another option might be to invest your money in a diverse set of investments in order to try and get a better investment return at the end of the 10-year period.
