Collaborative post by Taylor Brown
It’s funny how we’re expected to work out the most important things about adulthood on our own. For instance, you might have a degree in economics but still haven’t got a clue about how to cook or wash clothes. You might have trained to be in the hospitality sector at college, but you don’t know how to do basic maintenance on your car.
And for most adults in the UK, regardless of education, you almost certainly haven’t been taught about how to look after your money. That’s one of the reasons why almost 25% of Brits have no savings at all, and that rises to almost a half when looking exclusively at those under thirty.
It’s time to organise your money life so here’s a guide on the best ways to get your finances on track.
Don’t Get Into Unnecessary Debt
According to the BBC, younger adults are a little less likely to be in debt today than they were a decade ago. That said, almost four in ten still owe some money. So, step number one to getting your finances in order: don’t get into debt unless you need to.
Not all debt is bad though. For example, a mortgage on a house or a loan for a car are both perfectly fine, provided you can afford the payments. Debt only becomes problematic if it’s unaffordable.
Buying things on credit makes them cost more, and ultimately will result in a hefty chunk of your net worth being taken away from you over time.
Pay Back Debt Before Saving
Interest rates on credit cards can vary from 6% all the way up to 40+%. This means you’ll have to pay the bank between £6 and £40+ each year for every £100 you borrow from them.
In contrast, interest rates on savings accounts are currently as low as 0.01%. This means the bank will pay you 1p each year for every £100 you save with them.
Therefore, if you are already in debt and have some spare cash, you are usually going to be financially better off by repaying the debt rather than saving. While some may prefer to build a cash buffer for emergencies first, you could always just re-borrow the money you paid back if needs be.
Of course, individual circumstances will vary, but this is a good general rule of thumb.
Find Ways to Cut Back on Your Essential Spending
When it comes to personal finance, there are two main categories of spending: essential spending and discretionary spending. The first category is your food, groceries, transport, and utilities – the things you need to stay alive.
You can reduce your food spending by finding supermarket brand alternatives, switching to discount supermarkets like Aldi and Lidl, and making a meal plan. Meanwhile, you can cut your energy bills, insurance, and telecommunications bills by using online price comparison services to find the cheapest option for you. You may also cut back on extras like travel and entertainment for a while to boost your savings.
Find Ways to Cut Back on Your Discretionary Spending
Discretionary spending means the money you spend on things that you want rather than need. To sustain a frugal lifestyle, it’s actually important to have some “walking around money” that you can spend on things you enjoy.
This could be buying new clothes, a video game, a trip to the cinema, a night in a casino, or a holiday. You can control your discretionary spending by setting a fixed budget each month for how much you’ll spend on it and then being disciplined in sticking to it.
You can also find ways to reduce costs while still enjoying yourself. For example, use a casino bonus offer or find a cinema or restaurant voucher that’ll reduce your bill. Even small savings like this will add up quickly and help you get into better financial shape.
Save Before You Spend
Most people who work a salaried job are paid monthly, while some hourly employees get their pay every week. Many people then start spending that money right away, and they very quickly have a bare bank account once again. Doing so means they have nothing left to put aside in their savings account.
Thankfully there are some ways around this. The first is to set up a standing order that automatically transfers a set amount from your current account every week/month, right after payday.
Another way is to use budgeting apps like Chip or Moneybox that let you automatically round up the money you spend on your card to add it to a savings account. So for example, if you spend £1.49 in a shop, the app will round it up to £2 and put the 51p in a savings account.
You Don’t Need the Latest and Greatest
Each year, tech brands bring out their latest smartphone model, boasting about all of the new features, improved camera, and boosted speed. The latest flagship handsets from Apple and Samsung actually cost more than £1,000 to buy.
Even if you get it on a monthly contract, you’ll still pay this amount but spread over two or three years. In reality, most modern smartphones will last a lot longer than two years and still run all the latest apps just fine.
By only replacing your phone every four years and investing the £1,000 you save in the FTSE 100 index, you could potentially end up with an additional £51,000 over 30 years.
The same principle applies to any electronic item, cars, clothing, and more.
Buy Generic Brands Without Missing Out On Quality
Brands invest a lot of money in their marketing to create the impression that they offer better quality over other products. Sometimes this is true, but more often than not, it isn’t.
Generic food products like vegetables and grains are a good example of this. Changing from a named brand to a supermarket brand will leave you with an identical product and some money left in your pocket.
If you need a little more convincing, then look at a 2018 incident where packets of frozen sweetcorn were recalled by retailers in five different EU countries, including the UK. A type of bacteria called Listeria monocytogenes had been found in them.
43 separate brands of sweetcorn were recalled in the UK, including the supermarket brands from all major UK food retailers from Waitrose to Aldi, as well as several named brands. In this case, the product inside the packaging was the same and had been produced in the same factory, regardless of the name printed on the outside.
PIN IT FOR LATER