When you are living at home or you are a student, managing money and budgeting look like boring things that grown-ups do but don’t need to concern you. But when you take your first steps into the world of work and self-reliance, how you handle your money can mean the difference between achieving your goals in life and ruefully wondering in 30 years’ time where all the money (and the opportunities) went.
Setting Your Budget
You will never manage your finances if you don’t have a budget. There is plenty of advice out there about how to work out a budget, but basically it involves calculating how much money you expect to have coming in over the next 12 months, and deciding how you are going to use it, split between three categories: unavoidable expenses, like housing and utilities; savings (including pension) and debt payment; personal spending.
The Best-Laid Plans
It is said that in a battle the plan only lasts until the first shot is fired, and the same applies to a budget, especially in the early stages.
Every month it will help if you conduct a quick review of how things are going. Are you able to keep your casual spending down to the projected level and, if not, how are you going to put that right?
A good tip is to pay cash for the incidental indulgences. Put a weekly or monthly amount into your wallet or purse, and when it is gone, it is gone.
Look at your unavoidable costs, which in a typical budget are likely to account for about 50% of your income. Is there any way that you can save money, perhaps by changing your supplier? Keep a close eye on the comparison sites, as there may be significant savings to be made. Where possible, pay bills by monthly direct debit on the day after your pay comes in.
Saving for the Future
Every month, check that your savings are on target. Saving is not an optional extra. 20% is a good proportion of your income to aim for.
Make sure that your pension contributions are regular. The more you contribute to your pension today, the less of a struggle it will be tomorrow.
Your medium-term savings will depend on your plans for the future, but once you have decided what you need to save, do everything in your power to keep the payments regular – once you miss one, you will find it easier to miss another.
Build up a short-term reserve for emergencies. Before you do that, concentrate on paying down your credit card debts. If you have a significant debt, stop using the cards and fix an amount to pay it off as soon as you can.
If you have a student loan, you normally will not start paying it off until the April after you graduate. If you are lucky enough to go straight to work, you have a few months to put the equivalent amount into savings or debt repayment, so that you hardly notice it when the student loan payments start.
In the early months, you will find that plenty of your earlier assumptions were wrong. There is no harm in adjusting the amounts you are going to have to pay out in future months. You might, for instance, have to recognise that your medium-term savings plan was unrealistic in the light of a discovery that your unavoidable costs are higher than you realised. Always look to find savings in your discretionary costs first, though.
Apart from reviewing where you have got to, you should get into the habit of looking ahead each month to check that you can meet all the upcoming expenses.
What happens if you can foresee an expense that you will not have the resources for? There are a number of alternatives, like paying by instalments. Alternatively, you could visit MoneyBoat.co.uk/payday-loans for information about affordable payday loans; or there may be enough by now in your savings account to borrow from yourself. Whatever route you choose, adjust your plan so that in this and every subsequent month you are on target to repay the loan in the shortest possible time.
Good Habits Last
The financial habits that you establish as a beginner in the world of work and money will set you on a path to realise your hopes and ambitions for the future. It may seem like a hassle, to begin with, but in time it will become a natural part of your routine.
Editor’s note: Yasmin Baker writes about money. She’s a personal finance consultant and writes articles offering up some invaluable advice for managing finances when time allows.