How to Spend Your Money – (The Beginners Guide)

If you have ever got to the end of the day, week or month and wondered, ‘Where the hell did all my money go?’, you are not alone, my friend. From the untracked direct debits, to the f*ck it I’ll get an Uber, from the unexpected medical bill, to the wine-induced online splurge, money has a terrible habit of slipping away from us.

If you are guilty of blindly tapping, swiping (and occasionally, crossing your fingers that your card will go through), then this post may help get you started.

The Basics – Do You Even Budget? Few things are duller than the thought of tracking our everyday spending. Worse still can be adding up our debts and calculating at this rate (17%, paying only the minimum monthly payment), we will probably be paying them off for the next 4,000 years. That said, financial stress can impact every area of our lives, from where we live, to how bad our hair looks, so in essence money is not so much about buying stuff as having the freedom to choose how we live.

So, if you are an absolute beginner (or haven’t done this for a while), I urge you to write down ALL your monthly expenses. Don’t forget stuff like dog grooming, dental costs or medications that you might not need every month, but can be divided up accordingly. Now what? Well, now that you know what you spend, lets see if we can find a formula going forward that YOU can control.

The System: Bankruptcy expert, Elizabeth Warren, suggests the “50/30/20 rule” for managing our moolah, which is a pretty easy way to get started. The rule requires you to limit your ‘needs’ to 50% of your after-tax income. Let’s be clear here – ‘needs’ are the absolute essentials in our life – housing, utilities, groceries, insurance (health/car) and car/minimum monthly payments on any cards and loans. ‘Needs’ are not Netflix, weekly take-aways and Friday night cocktails (although obviously I hear you – we need that sh*t to get us through the week – bear with me.) When it comes to the things we want (new boots, trip to Bali), we need to try and limit these to 30% of our take home pay. The remaining 20% – what 20% I hear you say! – should be allocated towards Savings & Debt Repayments. If you have debt, then this would be the extra credit card/mortgage payments. If you are sitting pretty, then this is the stash you should be saving (for an emergency, a rainy day and ultimately your retirement).

Sounds easy doesn’t it? But look – I know that in a lot of cases the numbers are just not going to add up…..but……if you ever want to get to wherever you want to be (more on this in a bit), then it might be time at trying to squeeze your salary into this equation. Here are a few suggestions to get you started:

‘Needs’ – Can you find a way to shave these down? When it comes to groceries, there can be quite the differential between writing a list, choosing the specials and being Aldi-tastic about it, and just randomly popping into Tesco express every day on the way home and cramming your trolley with high-end organic goodness. Can you consolidate your credit card debt into a more manageable monthly loan payment or switch to a card with a % interest rate intro offer? Do you even need a car?

‘Wants’ – This is the hard one, because shopping has never been easier (did somebody say free returns?), we are constantly bombarded with stuff to buy (you checked out those shoes once and now they are popping up on your feed every 15 minutes shouting ‘pick me!’) and because we are pretty damn sure that the next thing we buy will finally make us happy! (ps – it won’t) To minimise the damage, I recommend checking all those sneaky direct debits (why pay for Apple Music if you only listen to Spotify), not shopping with friends (‘that is so cute, you should definitely buy it!), going on an all cash diet (or committing to only using your card for purchases over $50) and to using the tricks, like the HALT method, in this post from a few week’s back.

‘Savings’ – The absolute best way to save anything is to get it deducted from your salary, into a savings account (without a card), before you do anything. Pretend it does not even exist. If you can’t find 20% of your take home pay, start with 10% or even 5% – use that to reduce debt and start your nest egg. The funny thing about money is that it tends to be pretty elastic. As we slowly earn more through our lives, we just stretch our lifestyle to accomodate that new amount, so we still end up with nothing at the end of each month. To help break this pattern you can try using one of the ‘digital piggybank’ apps, that sneak small amounts out of your account, either by rounding up purchases or that their algorithms determine you won’t even notice. To do this manually, you might choose to save every 2 pound coin you get, or every $5 note that makes its way in to your wallet. Small amounts do add up….. eventually. The $1000 project uses a unique ‘bundling strategy’ that encourages saving and earning extra money in small, achievable ‘parcels’ of $1000 – I put my teenager on to this one and it is actually working.

The reason I am urging you so strongly to start NOW is because the earlier you start the WHOLE lot easier it is, (been there, done that, couldn’t even afford the t-shirt). This is thanks to something called compounding (which is much sexier than it sounds). There are loads of articles out there on the benefits of compounding, but here is one example from an article on CNBC: Their finance expert ‘factored in investing $100 a month for 20 years starting at age 21 and assumed a 5 percent annual return. Compounded monthly until age 67, that’s just over $150,000. Starting just five years later at age 26, alternatively, came out to slightly more than $117,000 at retirement age, or $33,000 less. The cost of waiting 20 years nets only $55,000 — a difference of $95,000.’

So, it’s basically ‘free’ money that you are throwing away the later you start.

We mustn’t also forget that most us don’t just need a ‘how?’, we also need a ‘why?’ – the ‘why’ is what makes the ‘how’ possible. The ‘why’ is the willpower we need to say no to that overpriced dinner or that new black jacket. So, take a minute and really think about it. What do you want your life to look like in 3 months? 3 years? 30 years from now? What you decide to do today, tomorrow, next week and beyond will either see you inching closer to those home-owning, holiday-tastic, debt-free dreams of yours. Or further away from them (‘help me, I’m poor!’)

And if that won’t make you lose your financial appetite, I am not sure what will.

This GET RICHER post was brought to you by someone who clearly understands the difference between want and need….. I want abs but I need tacos.

*Please note I have no financial qualifications of any kind. The above are merely poverty avoidance suggestions. Please consult a professional banker or financial adviser for proper advice and blah blah blah, you get the idea, I don’t want to get myself in trouble. Thank you.