Make your money last until payday!

Does your salary regularly disappear well before payday? Here's how to make sure it never happens again.

If you’re anything like me you’ll already be looking forward to the end of the month. And why? Well, because, for many people, it’s payday!

Sometimes that final week before your salary arrives in your bank account can be a real financial struggle, especially if you haven’t really got to grips with budgeting.

In fact, according to research by insolvency trade body R3, more than four in ten adults in Britain (42%) struggle each month to make it to payday and the average day this struggle begins is the 20th day after payday. Ouch.

There’s nothing which passes by more slowly than the days when your finances won’t stretch beyond beans on toast for dinner and soaps on the box. And it’s particularly painful when you’re not really expecting it. So here’s my five-step guide to budgeting. Let there never be a nasty ‘insufficient funds’ moment at the cash point ever again!

Step 1: Get to know your spending habits

Many of us are happy to bank online, but since the latest balance is only ever a few clicks away, it’s a mystery how we manage to lose track of our cash. But somehow some of us still do. The best way to keep an eye on things is to note down all your purchases -- however small -- in a spending diary.

You can do this using the free spend tracking tool, Tracker at lovemoney.com. If you register your accounts, every time you make a purchase – no matter which bank account or credit card you use – the tool will record it for you, and then allow you to categorise all your transactions so you know exactly what you're spending your money on every month. Alternatively, just make a note of everything you spend on paper.

By doing this, you’ll always know exactly how much cash you have left and you’ll know where all your money is going. (Be prepared for some not altogether pleasant surprises!) You’ll probably find it’s those little treats here and there which really add up.

Step 2: Work out how much you’ve got and how much you need

It’s really just a simple task of putting a figure on the money coming in every month and the money going out. You’ll need to include all your household bills, outlay for your mortgage/rent and debt repayments as well as your day-to-day spending. 

I like this calculator from the Money Advice Service website which helps you to work out how much money you’ve got left once you’ve shelled out for all your essential expenditure. It’ll also calculate how much money you pay out in different areas. So if your ‘leisure’ spend far exceeds your ‘household’ spend, then you know you may have a problem!

Step 3: Get budgeting

Of course, what you hope is that the first figure (money in) is much larger than the second figure (money out), but if that’s not happening, you need to start thinking about making some budget cutbacks.

Once you’ve done Step 2, you’ll know how big your budget shortfall is. And Step 1 will already have told you how you spend your money. If you find you have a tendency to fritter on certain items, try to cut them out or, at least, replace them with cheaper alternatives.

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For example, if a lot of your money goes on socialising, try inviting friends over for dinner more regularly instead of going out to expensive restaurants.

Step 4: How to make big savings

Budget cutbacks will only get you so far. Your next step is to give your finances a good overhaul. These ideas make good sense, even if you still have plenty of money left at the end of the month:

• Seriously think about remortgaging -if your introductory deal is about to come to an end -- or you don’t have a special rate at all -- you may be able to make big savings. Speak to a broker at the lovemoney.com mortgage centre for more help.
• Attack your debts - as soon as you pay your very last repayment, you'll enjoy a big boost to your finances. And the quicker that day arrives, the better. In the meantime, make your debts as pain-free as possible by moving credit card balances onto a 0% balance transfer credit card deal. (Some cards will allow you to transfer your overdraft too.)
• Switch your gas and electricity supplier - are you paying over the odds for your energy tariff? The chances are if you’ve never really looked at your fuel bills, you’re probably paying more than you should. Switch to a cheaper tariff now before winter really sets in.
• Get saving - you might find once your finances have a clean bill of health, you actually have some spare cash. Continue all your hard work by putting this extra money into a high interest savings account.

Step 5: Every little helps

And don’t forget about the little things too. There are literally thousands of ways you can make savings. From the obvious things -- walking to work, cancelling an unused gym membership or taking homemade lunches to work -- to the more obscure. Find loads of great ideas by reading our many money savings tips.

Once you carried out all these steps, you should find your salary lasts all the way to payday -- and beyond!

This is a classic article that has been updated for 2011.

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