Now Christmas is over, your thoughts might be turning to 2023, New Year’s resolutions and turning over a new leaf.
However, millions of us will also be feeling a creeping sense of dread about their cashflow, either from overspending or simply struggling to stay afloat during the cost-of-living crisis.
Lots of people simply go in to financial denial. Most of us – myself included – worry about what we actually spend versus what we’ve earned. This might be because we don’t want to see what we’ve wasted cash on (you’re allowed to treat yourself!) But often there’s a deeper concern. Taking a clear look at your spending makes your financial situation a reality – you can see what you can and can’t afford in plain terms. But it’s also the first step towards taking back control of your finances.
The best bit about my budgeting advice is it doesn’t have to be a nightmare or even take that long to get started – and the psychological benefits outweigh most concerns you might have about your cashflow.
Here’s how to get stated.
The budgeting basics
Take a deep breath, turn on the computer or grab a pad and have a look at your bank accounts. But set yourself a time limit of no more than 30 minutes. Just getting started is the most important thing.
You can download free apps, watch flashy guides on YouTube or check out lifestyle blogs from ridiculously organised people. But budgeting is best when it’s basic. A simple spreadsheet is all you need – or a blank piece of paper.
If you have online banking, you can get a list of direct debits and standing orders with one or two clicks. List out when your regular payments are due and total up the cost, then compare it to what’s coming in. In a separate column, include things that you pay as you go, like the food shop, travel (when we can again) and lifestyle spending like entertainments and takeouts.
You’ll be amazed how quick this is to do – however, you’ll be left with the sum of money you have left over each month in rather stark terms.
Now that’s out of the way, let’s get some cash back
Go back 13 months through your bank statements and note down anything that you don’t recognise. Many people are spending hundreds, if not thousands of pounds each year on sneaky annual debits for things they neither wanted nor needed. These might be free trials for goods or services you signed up to, or more obvious things, like Amazon Prime or iCloud storage. Why 13 months? Many businesses sign you up to annual payments that might have slipped under your radar. So go back a year and overlap by an extra month and you should spot everything.
Ask your bank to cancel anything you don’t want or need straight away – and claim back the money if you haven’t authorised the payments. You can dispute unauthorised transactions through your bank or card provider or take it up direct with the firm that’s debited you – it’s up to them to prove you said they could take the cash.
Contact your creditors
If you’re worried that your household income is tight or you’re struggling to stay on top of things there’s a lot you can do to tackle the problem before it gets out of control.
The rules about financial difficulties are clear. If you’re struggling to meet your financial commitments then ask the business for help, they should come up with some solutions to help you buy some time while you get back on your feet again. They should also consider suspending interest and charges for a short period if it’s making your situation worse. This doesn’t mean money you’ve spent will be refunded, but it does mean that money you’ve been charged on top might be refunded if there’s a good reason for doing so. Loan and credit payment holidays are available too so ask and explain if you’re struggling.
Mortgage and loan holidays buy you a bit of time to regain control of your finances but bear in mind the money you owe just gets tacked on to the end of the mortgage or loan period and extra interest may still apply.
If you don’t need it, cancel it
Not using that gym membership? Do you rarely tune in to that TV streaming site? How about that healthy lifestyle app that’s £5 a month? Every little bit adds up – so ditch what you don’t need. You may be surprised what you find. Online statements and busy lives mean we don’t often notice or realise we’re overpaying for contracts that have ended, been billed for subscription traps after free trials or have forgotten to cancel things like old mobile phone insurance policies.
Get a (free) plan.
If your financial difficulties look like they might be longer term, then speak to a free service like StepChange, a charity set up to help people get back on top of their finances. They’ll contact your creditors for you and negotiate payments you can afford. It’s not easy, but it’s a solution. Never pay for a debt management service – there are free options out there. And bankruptcy and IVAs are very much a final option. Don’t go there unless you are all out of other solutions.
There’s great advice on websites like MoneySavingExpert and Citizens Advice, or through charities like Age Concern and Shelter. Regulators like Ofgem also have a full breakdown of the help available for people struggling to pay for bills (in this case energy). Just type ‘financial difficulties’ and the name of the regulator in to any search drive.
There are times when you look at your finances and it’s apparent you can’t afford vital things – like your home, for example. If that’s the case, speak to the mortgage provider about your options. There are many things they could suggest, from extending your term to letting you move to an interest-only deal for a short time. In worst case scenario you may find downsising to a cheaper property is a better option than defaulting on your mortgage. No-one likes dealing with problems that threaten your security. So if you’re worried about paying your mortgage then speak to the lender early on so they can come up with solutions for you.
Switch and save
Switching providers of services is a great way to save some cash. This is still a bit rubbish when it comes to gas and electricity, but in almost any other area, you can save a packet.
As I mentioned in my previous column, I halved my broadband bill simply by moving to a new service provider. There are also cash incentives to move bank accounts, much better deals for insurance policies and even changing things like your anti-virus software provider can save you some money. Staying loyal costs money.
Make your money work harder by using free apps
Now you’ve made your budget and saved some cash by cancelling the things you don’t need, you can start exploring some of the free apps and websites that can help you save. If you’re anything like me, and easily distracted, don’t start doing this until you’ve budgeted first though!
Interest rates are at their highest rate in over a decade at the moment, so if you can put a bit of cash to one side, you could make up to 5% or more interest depending on how long you leave it. Check out MoneySavingExpert for the best rates.
If you can’t face going through your bank account, then free apps like Little Birdie can track down subscriptions you’ve forgotten about or don’t need. You can also cancel them through the app or get reminders when contracts like your insurance end.
Hyperjar is another app designed to help you budget and save, by dividing up your money in to different ‘jars’ that you can use to keep on top of everything from shopping to the kids piggybanks – and get rewards. Or use apps like Jam Doughnut to shop and get cashback, vouchers and rewards for free.
Finally, check out the vast array of free budgeting tools, money monitoring services and digital banks – but check out user reviews before downloading them.
Dealing with difficult decisions about your finances can seem overwhelming. But once you tackle them head on, the pressure is much less than the burden of worrying but not knowing. There is help out there.
Featured in Mirror – Martyn James