How to get an iron grip on your finances and sleep better at night.
Every newspaper and financial website is telling you to switch away from standard energy tariffs, to move your debts somewhere cheaper, and to take dozens of other cost-saving measures.
Shopping around for financial and utility products, and other goods and services, could indeed save you hundreds or even thousands per year. However, these measures aren't likely to improve your financial situation in the long term unless you remember the big things.
Don't forget the big things
Yes, there are bigger things than reducing your bills by thousands of pounds, and all of these revolve around financial discipline.
Just as you would expect even the best companies to spiral out of control if they had no financial discipline, it's no surprise that decades of no checks and balances on our own personal finances have led millions of individuals in this country to the brink of disaster.
Unless you have controls in place to save for emergencies and future needs, and unless you have a system in place to stop yourself frittering away any savings you make on unnecessary luxuries, your shopping around won't result in any greater wealth or financial security.
You'll still be prone when unforeseen expenses or loss of income strikes, and you won't save enough for your future bills and needs.
How to control your spending
With more than a third of us sometimes being kept awake at night worrying about our finances – and that statistic from the Social Justice Policy Group came before the financial crisis struck – it's clear that we have not been taking the steps we should to protect us from ourselves and from outside shocks.
Here are five ways to get an iron grip on your spending, helping you to take control and to sleep better at night.
1. Start a spending diary
This is a simple way to see where your money is going and find any problem areas.
You just write down all your spending for a month or two, categorising it by type of spending, and missing nothing out.
When you use your credit card, you still record the spending at the time you made the purchase, to ensure no cheating.
2. Write a statement of affairs
A statement of affairs is a snapshot budget. Writing one will make it clear to you what money you have to have fun with, and how much you need for the basics and for emergencies.
You write down your average monthly income and average monthly expenses. Estimate how much you might spend on big things like holidays and MOTs, and divide them by 12.
You also get a snapshot of how much debt and money you have to spare, as well as the interest payments you're making on debts.
There are lots of templates you can use to make this easier, such as this one from British Invasion.
3. A budget with cash flow
An annual budget with cash flow is for the grown-ups.
A spending diary and statement of affairs eases you nicely into a budget that properly considers cash flow, which is the amount of money that comes in and goes out during different months.
Tracking cash flow is essential for anyone with no savings or very little savings, whether you have debts or not, because it will help you to balance the books when you're just a few months away from a big bill.
You can create a simple version of a budget with cash flow by tweaking your statement of affairs to take into account how long you have to save for big bills or how soon you expect to get an annual bonus.
Say you want to spend £600 on your annual holiday. Your statement of affairs states you'll need to save £50 per month. However, if your holiday is in six months, you'll need to save £100 per month until then.
So you adjust your statement of affairs to show £100 per month for your holiday. You can do the same with any other big expenses. This will make it harder for you in the initial months, because your budget will be tighter, so you'll have to be disciplined.
However, once each of these big events have passed, you can adjust your budget again. After your holiday you could reduce your holiday budget to £50 again, for example, if you now have a year to your next one.
You have to re-consider your statement of affairs every month to see what has changed, and amend it accordingly.
4. Shopping list
Keeping a shopping list ensures that you don't go around impulse-buying everything that makes you salivate.
It's a simple list, but one that many internet users have reported has turned them into disciplined shoppers and saved them a lot of money.
5. Keeping your financial paperwork/e-paperwork in order
Finally, in support of all this, you need to buy yourself some folders and shelves to organise all your paperwork and receipts, so you can more easily track your spending, and budget more accurately in future.
The same goes for online accounts, which you should all keep saved together in one Favourites folder. You could also use secure services like MoneyTrack to compare your success against your personal budgets, and to keep track of all your online accounts in one place.
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