Your Guide To Easy Money!

We show you how to banish your money worries by making more money, managing it better, and hanging onto more of it.

Why are bad habits so hard to give up, but good habits so difficult to acquire?

One reason is that vices such as drinking, smoking, gambling, overeating and overspending in the shops (yes, 'retail therapy' is a vice!) become so ingrained into our everyday routines that we find it hard to turn our backs on them.

Indeed, behavioural psychologists say that adopting a particular form of behaviour for four weeks will create a deep-rooted habit which is hard to abandon. However, every year, millions of people draw on their willpower to give up unwanted habits, with or without the help of others. For example, around a million smokers try to quit each national No-Smoking Day -- and about 60,000 actually succeed.

In my experience, bad money habits can be just as tricky to tackle as other, more physical, problems. After all, we're taught precious little about personal finance in school, plus many parents fail to pass on money-management advice to their children. Hence, most of us are forced to learn for ourselves and, naturally, some of us fall into bad habits.

Without question, we Brits have come to rely too heavily on credit cards, overdrafts and other borrowing to make ends meet. This is partly because we've become very bad at budgeting: one estimate is that, as a nation, we spend £110 for every £100 of take-home pay. In addition, we don't save as much as we used to -- only about a twentieth of our disposable income (5%), compared to a tenth (10%) ten years ago.

Thus, it's high time that we Brits turned the corner by dropping our bad financial habits in favour of good ones. Without further ado, here's my money masterclass in the art of budgeting:

Step one: take a snapshot of your finances

First off, you need to find out exactly where you stand. This involves creating what we call a statement of affairs (SoA), in which you list all of your income and outgoings, right down to the last penny. Only by doing this can you see from where your money is coming, and where it goes. Without this knowledge, money is your master, not your servant, because if you can't measure something, you can't manage it!

Once you've completed your SoA, take some time to study it, because it will tell you a great deal about how you currently manage your money. At a glance, it shows whether you have some disposable income left at the end of each month, or whether you're living above your means.

Step two: tot up your essential spending

Armed with your statement of affairs, you can begin to knock your finances into shape. At this point, it's a good idea to work out how much of your earnings is spent on non-essential items, so you need to make a list of the absolute essentials of everyday life. This memory aid is very useful: remember that you have to pay THEM FIRST:

Tax (council) (people go to prison for not paying their council tax)
Hire purchase (you don't want your car or other goods to be seized)
Electricity and gas (don't get cut off)
Maintenance and child support

Fines (to avoid going to prison)
Income Tax
Rent or mortgage (to avoid losing the roof over your head)
Second mortgage (ditto)
Television Licence

Once you've totted up these priority bills, add on the cost of other important bills, such as water rates, childcare, car, home, life and other insurance, telephony, travel and so on. Eventually, you'll arrive at a figure for your discretionary spending and, with any luck, any surplus cash which is left over.

Step three: check your paperwork

Now it's time to take a look at your bank, credit-card and other statements to see when and where problems arise, such as fees for late payments and unauthorised overdrafts. (By the way, if you've been hit with these fines at any point in the last six years, you can claim this money back; this guide will help).

Think about any patterns which emerge: when do you get into financial difficulty, and what are the underlying causes? Studying your financial lifecycle will give you great insight into how you can begin to change your behaviour.

Step four: keep a spending diary

If you really want to go the whole hog, then try keeping a spending diary for a month, in which you record every penny of your spending, whether by cash, cheque, plastic card or whatever. When I was broke (particularly at university), I kept a spending diary; I can confirm that it's not as boring and tiresome as you'd think.

Indeed, my diary often stopped me from wasting money, because I'd change my mind about buying something once I had my little red notebook in my hand. At the very least, keeping a spending diary will help you to 'sweat the small stuff', as our American cousins would say. You'll soon see how much money goes down the drain when you add up all those Starbucks coffees, treats, sweets and nice-to-eats!

Step five: start actively managing your expenses

Now it's time for some quick hits: your next task is to trim the cost of what you already buy. This means putting all of your spending under a microscope, with the aim of getting what you need for less. So, it's time to shop around for cheaper credit cards, energy suppliers, holidays, insurance, Internet and telephony, mortgages, motoring expenses, personal loans, and so on.

Step six: get your timing right

Are your earnings and your outgoings neatly harmonised, or are they out of synch? It's a good idea to arrange things so that your big bills come out when your bank balance is strongest, usually immediately after payday. For example, all of my major bills are paid by direct debit or standing order on the first of each month, which is one day after I pay myself.

Hence, I only need to worry about my bank balance at the start of each month -- and I'm careful to make sure that there's enough money in my account to meet my monthly bills on that date. So, for an easy life, bring your earnings and bills into line and get them marching in step. By the way, switching to a high-interest current account can also give you a breathing space by increasing the amount of credit interest that you earn and reducing the cost of being in the red.

Step seven: make the most of your spare cash

If you've done things correctly so far, you should have some spare cash left over at the end of each month. If not, you may have Champagne tastes and a beer income, which means that a radical lifestyle rethink is in order!

Anyway, your next task is to decide how your spare cash can work hardest for you. If you have debts, particularly credit and store cards and overdrafts, these are likely to be costing you anything from 15% to 30% a year in interest. Hence, paying more off your expensive debts is usually the best way to make use of your spare cash. If you don't have any debts, then open a high-interest savings account or tax-free cash mini-ISA and use your leftover income to build up an emergency fund or cash cushion.

Step eight: make yourself rich

To build significant wealth over time, you need to be investing in something, for instance, your own business, shares, property or alternative investments. Although starting my own business last year has helped me to increase my income dramatically, most of my current wealth comes from investing in companies via the good old London Stock Exchange. This article sets out a simple, low-cost way to make money from shares by investing in index trackers and other cheap, simple investments.

Step nine: switch to autopilot

Your penultimate task is to automate your finances as much as is humanly possible, because money management can be dull when you can't let go of the reins. So, make sure that any income coming in is paid by direct credit straight into your bank account, because paying in cheques and cash over the counter is a pain.

Also, set up direct debits and standing orders to pay all of your monthly bills -- as a bonus, many firms give you discounts for paying by direct debit. Lastly, don't forget to make your saving and investing automatic too, by making regular payments to build yourself a brighter future.

Step ten: sit back and relax

Finally, you can unwind, loosen up and cast off your money worries, safe in the knowledge that you have a foolproof financial system. Sorry, but that's not true, because you still need to make sure that things are going according to plan!

Hence, even though you've done all the hard work, you should continue to monitor your finances occasionally. This could mean checking things once a month, once a week or even every day -- the choice is yours!

That's all from me. Here's hoping you become a Master Money Manager very soon!

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