Unfortunately I wasn’t taught early in life how to manage my money, how to save, or how to manage a limited household budget. I now realise these are essential life skills. I swear I’m not going to let history repeat itself and will ensure our kids will know about how to manage money from an early age.
Already I make sure they understand that the cash point gives us access to OUR money which is stored in the bank rather than free handouts whenever we fancy it. We also give them 50p pocket money each week (when they ask for it!) which enables them to buy comics or charity shop treats rather than relying on pestering me until breaking point to buy them a treat.
It has only been in the past 18 months since leaving my silly City salary behind and managing to have a fine standard of living on Bealer’s (self-employed) salary alone that I have finally learned the basics of spending less than we earn and anticipating/saving for things we want in the future.
Strangely, despite Bealers also having nobody show or tell him how to keep on top of personal finances, he has been the one who has taught me the most about staying on top of bank statements, categorising spending into regular/fixed essential spending (utilities, rent/mortgage, insurance) and discretionary spending (diy, meals out, travel, gifts, car repairs) and most importantly making sure we always have enough for important things like car tax, Christmas food and unexpected disasters.
Even when we were footloose and fancy-free both earning fairly good London salaries and had no kids to worry about Bealers was really good at reconciling online bank statements, paying off credit card bills in a timely fashion and working out how our fairly consumption-heavy lifestyle (plenty of foreign travel, loads of meals out, new bathrooms, books, CDs, loads of clothes) would be financed. Meanwhile I treated money like water - it trickled quickly through my fingers with the sense that there was plenty more where that came from. I would never have a clue what my bank balance was until the cashpoint refused to give me cash, whatever I fancied I would buy it (tropical holidays, new things for the house, shoes, nights out). A recipe for financial ruin apparently but fortunately stopped before any real damage was done.
When our twins arrived in 2003 we were amazed to see a whopping £10,000 worth of savings be frittered away within 6 months. Goodness knows on what. We did buy a new 2nd hand car, huge amounts of brand new baby equipment, nursery fees, holidays etc but nothing really tangible for such a huge sum. I guess it’s irrelevant now but as we’re expecting a new baby very soon it is interesting to note that we have changed hugely in the past 5 years and certainly will not be saying goodbye to large sums just because Junior has joined us (see ‘Thrifty Pregnancy/Baby‘ posts).
The top tips we have for managing our finances now are as follows. They work for us, are constantly under review as to whether there are better ways of doing it.
- We use our main (joint) current account as the primary account for receiving all income and handling all regular direct debits and standing orders
- We know how much & when monthly direct debits/standing orders are leaving the account(listed in a spreadsheet by date of month and category: Insurance (Life, car, house contents and building), Communications (phone, broadband, mobiles), Tax, Utilities (Water, TV licence, electricity, gas), Misc Debt (loan repayments), Mortgage or Rent
- We know how much income is coming in each month & immediately take 10% from this and syphon off into a high interest savings account
- We have a realistic Housekeeping budget kept separate from main current account (we have a separate bank account but are now trialling having monthly housekeeping money held as cash in a jar) to cover food, medicines, kids clothing, school expenses etc. We eat homecooked food and regularly plan our meals so that our weekly grocery budget is less than £50.
- We each have a small personal cash account each for ‘pocket money’ type spending (eg. beer money, cinema trips or any other luxuries hard to justify to your significant other). Use any left over each month from this to save up for big personal treat.
- Regularly visit list of anticipated discretionary spending for the coming year (eg. holiday, car MOT, Xmas food & gifts) and adjust as the predicted number become actual (eg. MOT for car predicted to be £200 was only £70) or unexpected unavoidable costs occur (eg. boiler repairs £250)
- We hold a float of £5000 in online saver account to use as an overdraft instead of using the banks overdraft facility
- Aim to have contingency fund of 3-6 months salary/expenses built up in high interest, instant access account for emergencies (unemployment, critical illness etc)
- We have a fairly clear idea of our financial goals (eg. always spend less than we earn, regularly save 10% to gather compound interest of the years, have enough to live on when we retire, not save huge sums for the children to inherit, one day have a second hand sports car and speed round a race track at weekends, enjoy some foreign travel) and periodically discuss these with each other
- At the moment we are not owners of a house and have decided for the short to medium term we are better off both financially & standard of living by continuing to rent instead of pay off a mortgage. We are lucky that we rent a nice house for a modest rent, have no maintenance worries and a landlord who likes us and has no intentions of selling the house. We keep reviewing this situation and occasionally look at houses for sale in our area to see whether we would be better off moving to a house we owned.
It feels so much nicer to be in control than breaking into a cold sweat at the merest mention of financials. I’m grateful to Bealers for getting us to a point where we can hand on heart say we manage our finances well.
