Monday, 19 October 2009

How I handle my finances

Ok, a post on how I (roughly) handle my finances. While I don't want to get into micromanagement or budgeting (boring), It's probably worth mentioning.

Well, first things first. I don't budget. (Gasp!)

Why not? Well, it simply doesn't work for me. I find that the best laid plans tend not to work out, and if they don't, it's too easy to wind up worrying about backup plans, and it's easy to 'mis-plan' things. Basically it leads to too much worry, too much time fretting about things.

It's easier, I find, if you just think of the vague approach that you are going to take, try it, refine it if it mostly works, scrap it if it doesn't.

So here is the general approach that works for me:

Lets say I start to get a monthly salary where previously I had nothing.

In the first few months, I will spend nothing except the basics, e.g rent and food. I will get enough in to cover a couple of months rent, and set it aside for emergency use only. I leave a little bit aside on the last month I'm saving.

After that initial period, I then:

1) Out of that months salary, Just let the rent and bills come out automatically, and buy whatever food I need when I need it.

I can be sure that I won't run out of money for food and that because I do still keep a rough eye on what commitments I am making. I try to make sure that automatically deducted bills/rent will never suck up more than 60% of my monthly salary (at the minute I admit I am slightly over that). I know based on experience I will not use 40% of that salary on food (more like 20%). Then petrol comes out on top of that, the odd new bit of clothing, and anything else that is needed. This covers everything, and leaves a little bit left over.

2) If I want anything else, like entertainment I will use *only* whatever was carried over from the previous months salary. So if I had nothing left over from last month, I'll not spend anything on games, I won't get that plane ticket to go visit my friend, etc. This does happen every so often, but is rare.

3) I'll admit, I only started this recently to break a bad habit, (It was just before I started this blog - I might even include it as a 'saving' later) If I somehow don't use the money from last month, I dump it on the credit card (because paying only the minimum repayment isn't good)

The upside is that I simply do not stress or waste time over budget. I typically only buy extras like games and that with money that has been left over from previous months, I have that emergency money set aside in case I wind up jobless for a month or so, and I usually will have a little left over each month for use next month. On the other hand this does fall a bit flat when it comes to big ticket items, that I don't immediately have the money for. Then I find I've not enough saved and it has to go on the credit card. And of course slapping something on the credit card increases the monthly payment. If this happens too often I wind up in the situation I am now, i.e. needing to find an additional £6000 to clear it all, and finding that my left over amount per month isn't high enough for the quality of life I want.

But lets be clear, I never have to worry about starving or homelessness. In recent months I've had to cut back on heading out and joining in clubs and activities, but in general I can still hit the cinema when something is on, or get a game every month and a half. But it could be far far better, hence this blog/project.

One way I am going to make this way of doing things a bit better when this project is over, is that I am going to set up a savings account and whatever money carries over into the current month from two payslips ago, it goes into the savings account. I will make an effort to make sure this is at least £100 or so. This way I should be building up a nice stash to use should I need a big ticket item. Hopefully meaning I don't have to hit the credit cards again.

I probably won't be changing this way of doing things, frankly it works well enough for me. I only have to jot down what I've left at the end of each month and do some quick subtraction to work out what carried over from one month ago.

So hopefully this gives an insight as to how I do things. You won't find any micromanagement or endless detail on budgets here. The way that I'll be finding cuts for instance it that I'll say "I have thought of this, I can apply it like so, and this will save me £x amount over a year compared to what I do now". Fits into the framework of how I do things, and is easy, simple, and effective. Particularly if anyone wants to follow it themselves.

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