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Why? Why? Why can I not get my head around how money actually works?(41 Posts)
In theory I get it...money comes IN...you pay your bills, rent/mortgage, buy food, etc...so money goes OUT...and anything left over goes into savings.
In practice it's a big fuzzy ball of confusion that I just cannot get my head around. We are ALWAYS behind. It feels like we are never in control and I just can't internalise the concept of needing to NOT spend in order to save.
The things that are automatic work well. For example:
We get paid fortnightly, and I have an automatic deduction set up so that half the rent money goes directly into a separate account every fortnight. Then the rent is automatically paid out of that account. We are never late, we never have to think about it, and we are never tempted to touch that money.
I think where it really falls apart is food and non-essentials. I don't have a fixed grocery budget and I find it really hard to predict how much we will spend on groceries, eating out, coffees, trips to the hardware store for tools or gardening equipment...
I know I sound really flighty. I don't want to live like this anymore. If we were rolling in it I wouldn't mind so much but we're not. On the other hand we are not so poor that every purchase is an agonising decision. So we can afford to be careless in the short term but in the long term it's really hurting us - can't afford to buy a house, pay for nice schools, go on holidays etc, but somehow we fritter away hundreds on coffees and one-off purchases.
Has anyone else started from a place of utter confusion around money and managed to get their head around it?
I think you need two things.
First, get over to Money Saving Expert Forum, and do a Statement of Affairs, so that you can see where your money is going and they [sometimes brutally] will tell you what you are wasting money on. they will spot when you are paying out too much for stuff eg utilities, phone, coffee, eating out etc.
Secondly, you need a spreadsheet, to log all your in and out spend, be ruthless for three whole months, put every penny down on there, and then you will know exactly where it is going.
And if you are spending too much on things, cut them down. E.G. we used to go out every weekend and have coffees out. We bought a coffee machine which paid for itself in around two months. We then [when that broke, years later] bought an Aero press which was £25 and makes better coffee than we were buying. Tools - do you really need them [and I teach horticulture], can you use something else to do the job that you already have got? Can you get them through freecycle etc?
Try a written budget. You don't have to get it right the first time so don't worry about being super accurate right off the bat.
There is software like You Need a Budget which personally I found too complicated but lots of people love! DH and I use our own spreadsheet that we made. We use e-Savers a lot: we have a separate account into which we put all the bills money (like you do with your rent) then we each have an e-saver into which goes our personal spends for the month. Another for travel - out of which we reimburse ourselves for petrol, train tix etc - and another for food and groceries, which again we use to reimburse ourselves after making a purchase in that category. Everything else goes into savings: some locked away for our house deposit, and some in an accessible account we can use if there's an emergency or unforeseen expense.
I also recommend the book The Total Moneh Makeover. There is quite a bit of bible stuff in there, fair warning, but you can skip that if you want. The financial advice is sound, although if you're not in the US (I'm not) you need to translate it a bit.
I also recommend MoneySavingExpert. The forums there are really helpful and I consult the site before making any big purchase.
DH sister is like yourself but you are having a moment of clarity which is great she never has. She has always earned a very good wage and had twenty years of sometimes having almost no living expenses due to the unusual nature of her job.
Just sit down with a spreadsheet, its an effort in the first instance but once done then its really easy to update. We are currently looking in to a new mortgage and I know almost to the penny how much we have between us.
I have a small flask and often take coffee out with me. I bought my friend a really lovely insulated mug as she has a long train commute to work and she loves it.
Write down every time you spend money the amount and a brief description. Do that for a month and you will train your brain to think about the cost of buying things.
It is all too easy to swipe a card, hand over cash and not give it a second thought.
I have gone from being in debt in my late 20's to now having money in the bank in my early 40's. It takes time but once you think more about what you spend money on you start to make better spending decisions.
You may save up to buy something rather than impulse buy - shops try to upsell by getting us to buy more. I just went to a shop to buy some xmas things and got asked if I wanted to add selotape, christmas cards, wrapping paper. Plenty of those things in the store so if I had wanted them I could have selected those myself. By going to the cashdesk without them surely that means I don't need them!
We get out cah at the beginning of the month for supermarket shopping, coffee shop stops and a couple of meals out cinema, for four adults eating and two adults we get out five hundred, the last week is tight but we usually do it by eating the store cuboatd food I purchased in week one.
That said though there is money in the account left over, so if really desperate we can use that
Bills etc are taken out on day one so all that is paid.
I find cash in my hand easier to work with, divide into four and a half and when it's fine at the end of the week it's gone
I found the best way is to work out annual income and annual essential bills like rent, utilities and car expenses like tax, insurance. Then work out what is left. Now divide by 52. That what you have a week for food and non essentials. You could increase the transfer to the rent account by 20 to ensure you have money for Xmas and emergencies.
Bills - do the same as you do for your rent and pay from a separate account.
When you get paid, take four envelopes. Put £60 in two, one for each week and this is for supermarket shopping only. Put £40 in the other two. This is for incidentals, coffees, lunches, bits and bobs for each week.
Obviously change the amounts you put in depending on how many you need to feed, but once you've decided on an amount for each envelope stick to it AND DO NOT CHANGE THE AMOUNTS OR USE YOUR DEBIT CARD!
try some free solutions. STOP buying ANY of the following:
takeaway drinks. Carry a bottle of water with you, refill from the tap.
magazines, newspapers, books - use a library
new clothes for adults unless you actually have none or nearly none of the item concerned, and actually need to replace it.
toiletries until you are running out. Then replace from the cheap shops
makeup until you have run out
cleaning materials ditto.
if you are throwing away any food except teabags, peelings and eggshells you are wasting food. You should be wasting zero food.
tools etc; you must be at peak tool by now. Again, stop buying or look for ebay etc if you NEED something.
look at hammering down your utility bills with comparisons and using less.
Argh I just typed a long response and my server ate it.
Thanks for all the advice. I'm going to make a list and try everything... Even the things I've tried before (like tracking my spending; I never have been able to stick to it for more than a few days.)
Do you know what's funny though, even just reading all of your good advice my mind sort of goes blank - and I have a little voice going oh that won't work for me...
I wonder if there are certain brains that just don't "get" finances... A bit like money dyslexia?
I really will try to put some of these ideas into practice obviously... Didn't mean to sound so despondent. But it's funny that for someone like titchy for example, you're saying "easy" but it doesn't feel easy to me at all... My life would be so different if it did. I'm excited to think what the future could hold if I could get in control of my finances.
I think it can definitely take s lightbulb moment to really get it.
Part of my problem was that I felt that having and sticking to a budget would make me feel miserable, constrained, hard done by, poor. So I put it off for a long time.
What I actually felt, when DH and I did it, was empowered, in control, liberated. It was amazing.
Of I'm totally honest, what scared me most was actually taking responsibility for my own spending.
Instead of thinking 'I need to by this, and this, and this , and this...' With no real idea of how much it all adds up to or whether you can afford it, you say 'ok I've got £x to spend on this, what can I get for my money / how can I achieve it for this amount'. And if you can't afford it, you cut your cloth or put it off until you can.
You don't need to track your spending as you go - because then you're aware of it and think "ooh, I don't need that"
or is that just me?
What you need to do is sit down with your bank statements and credit card bills and look at what you actually spent for the last three months. That way you get an accurate look at what you're actually spending money on (and think "how the holy fuck can I spend £300 on coffee" or whatever).
Then, as PPs have said, head over to MSE and do an SOA. Be warned - they will RIP you to pieces (if you thought AIBU was bad...) if you don't see the light. But it helps. A friend did it and managed to go from having month left at the end of the money to having £1200 in savings in a year.
YNAB. It will change your life.
You can try it for 34 days free, so now is a good time to have a fiddle and see if you like it.
I agree. Get your bank statements in front of you for three months and a few sheets of A4 paper and a calculator. Then work out what you spend. Then take a few days to just think it over. Knowledge is the first part of control, at the moment you have neither and I think this is the starting place.
You may find that you spend £50 a month on coffees or whatever. You probably won't have to do anything other than know that to then cut down without really thinking about it.
It's shocking at how much you can spend when you don't put some thought into it. I use jars, following the method used by Gail Vaz Oxley from a Canadian program called 'Till debt to we part'. The envelope system is similar (we do ours weekly not monthly with all money left over going into the saving account). What really works for us is forcing ourselves to write everything down. There have been times where I realized I didn't need something because I couldn't be bothered to write it down!
We have made our savings automatic. Payroll here in the US can be split and its a requirement in our state to enable child support payments. We take advantage of that and split our income into our regular spending account and a separate savings account we hold at a different bank to our spending account so spending it isn't so easy.
YNAB (You Need A Budget) really is life-changing, download it today and watch some of the videos. I promise you will feel in control of your money again very quickly.
MSE Budget Brain asks everything you may have ever paid for /earned & ways to save.
I find online shopping a really good way to get a handle on food spends. I set myself a weekly budget and can instantly see if I've gone over and remove some items from the basket to rectify that. Plus you don't get distracted by special offers.
I'd really recommend downloading x months of bank statements into a spreadsheet so you can see where it's all going.
Your brain is fine with finance but your brain doesn't want to change - change is your problem and that is why you are telling yourself...that won't work for me.
It's not difficult to collect all your bills for council tax, electric, water, rent, car insurance, MOT, phone, internet, TV licence ect and with council tax x by 10 and divide by twelve, with water if not a meter then x by 8 and divide by 12.
Then just divide into 26 as you get 26 pay packets per year.
I make an annual budget spreadsheet each year, so I figure out how much earnings we'll have for the year ahead and a budget for expenditure, based on last year (though you can use bank statements to check expenditure)
On the budget spreadsheet there's a column for weekly, monthly and annual, weekly are multiplied by 52 to get an annual figure, monthly by twelve. This way every single planned expenditure is accounted for and not forgotten, down to the annual chimney sweep.
Once I've worked out the difference per year between earnings and expenditure, the leftovers are divided by twelve to give us our monthly fun money, this is then divided by two, half for me and half for DH, and that automatically goes into our own personal accounts each month. This is for coffees, nights out, clothes, haircuts etc, and once it's gone it's gone, we would never consider spending money from the joint account for this.
I wonder if you associate saving or being good with money as somehow negative. You'll be amazed how lovely it is having money in the bank or achieving a money goal.
you're perfectly capable!
there's generally no such thing as an 'expensive month' - as mentioned above you know the insurances etc are coming so you plan for them. You also plan a budget for things such as boiler problems, car repairs etc. Right at the bottom is sparkly-tat-mas, there is NO reason for December to cause cashflow problems because gifts are not essential. Stop all adult present buying and agree a strict budget for kids; if you can't even do that, stop kid presents too. No-one will starve.
your short-term target is six months of living expenses stashed away.
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