More month than money? Living for payday? Do you desperately need to start saving money now, before it’s too late?
How can I start saving money now?
If you need to turn your finances around, you might easily be tempted by get-rich-quick scams or end up spending far too much time filling in surveys for a pittance. Yet whilst making extra money might be important, it doesn’t cut down to the cause of your budget imbalance.
You need to go straight to the source!
The first thing that I recommend to anyone looking to straighten up their finances is this:
Write down everything you spend for one month.
Most of us whose bank accounts are in good shape have an idea of income and outgoings, but don’t necessarily know these down to the penny. So if you want to get out of the red, or want to get even better at managing what money you have left at the end of the month, start here: write it down.
Every transaction, down to the penny, whether cash, card, contactless, direct debit or standing order.
How should I record my spending? Digital or analog?
Write it down any way you like – my husband preferred writing transactions on a calendar, whilst I always kept my records using apps on my phone. Yes, I did it at the start of my extreme penny-pinching several years ago, and I got hooked. Now it’s evolved into a streamlined system, but it started on a calendar.
The best thing is, you don’t need any fancy notebooks or tech, you don’t need to spend a thing to get started, and you don’t need to set up any special bank accounts.
There are a few free apps and tools that you can use:
Emma is an app that connects to your bank account and automatically generates reports.
Curve is a digital wallet and app that connects to all your credit and debit cards and provides in-app insights, allowing you to look back at your purchases and get digital receipts.
And of course for your cash purchases, you can use an inexpensive notebook from the pound shop!
There’s no reason to put it off.
Financial knowledge equals financial power
If you track your spending for one month, the first thing you’ll get out of it is knowledge.
With that knowledge, you can see precisely where your money goes, and you’ll then be able to change where it goes. Furthermore, if you decide that you can’t change things or cut back, you’ll know exactly how much more you need to make before you can balance the books.
But there’s still another reason why tracking your expenses is the way to start saving money – it’s in the psychology of spending.
No pain, no gain
The reason it works is simple. It’s painful.
I don’t mean that it’s a pain having to do it,although it is a pain when you forget to do it straight away and then have to rack your brains over how much that sneaky chocolate from the petrol station was or hunt down the receipts you magically accumulated. You could say it’s just painful to face facts about your spending, but that’s not it either.
The pain of spending is what helps us to be frugal, but the modern world has (unfortunately for many of us) eased that pain.
The BBC’s three part documentary The Men Who Made Us Spend highlighted many aspects of contemporary consumerism which we walk past daily without a second glance. In one episode, it was shown that making purchases with cash created a more ‘pain-like’ sensation in the brain, whereas using credit cards bypassed this effect by forestalling the inevitable loss of currency.
If you don’t see it, it doesn’t hurt you.
This is why many personal finance gurus will advise you to pay only with cash, because you’ll want to minimise the pain caused by spending with cash. But I don’t use cash much because I get too many perks from my plastic – cashback, for example.
What this system does is make paying with plastic almost as real as paying with cash.
So make yourself see it all. You will want to find ways to reduce the pain, so you’ll find yourself saving money by choice, without even having to think about it.
It’s a mental training regime. You’ll feel empowered to plug the leaks in your pocket, so the pain will in a real sense become gain – money staying in your wallet.
Do I have to track my spending forever?
No, of course not!
Track your spending for at least one month to get the benefit of your spending data. Track it for longer if you want to discover patterns in your spending habits.
The longer you do it, the stronger your training will be, and eventually you’ll find that you may no longer need it.
Should you track your expenses?
If you find yourself dipping into your overdraft, avoiding bank statements or living for payday, then you definitely need to.
If you have enough for now but feel you need to prepare for a change in the future, then yes, of course you should. It doesn’t mean that you will spend your life being uptight over every last penny, but it does mean that you are taking control of your finances.
Maybe you’re desperate to plug the leaks in your wallet before you go under; maybe it’s just that you’re intrigued enough to do it for the laugh. Regardless, if you want to start saving money, just give it a try for a month.
I dare you.