To wonder how to actually be good with money?

[ForBreezySloth]

I feel like I hear so much advice about budgeting, saving, investing, etc. but it always seems so overwhelming. I want to be good with money but I’m not sure where to start. Should I focus on cutting costs, saving more, or figuring out how to invest? How do people actually manage it all without stressing?

If you’re totally new to it I’d suggest putting money into a savings account as soon as you get paid. Put in an amount you can afford. I have a NatWest one which pays 6% put you can only put max £150 a month in but also any ‘round ups’ you have, I’ve had it for 12 months nearly and have over 2K in there now. Maybe just turn on round ups, where it rounds up to the nearest £ and puts it into a savings account.
Look to cut costs too, when I shop at Aldi or Lidl I spend a lot less.
I’m a saver though and it really doesn’t take long for it to build up.

What are your bills?
How much do you have coming in?
How much going out?

I’ll give you an hypothetical example:
Monthly bills (utilities, tv, mortgage etc) £1500
Yearly bills £150/month
Food £300/month
Savings £400
Discretionary spending (fun, books, clothes, presents etc) £200

All adds up to £2550
Salary is £3000

That leaves you with £450. This is to be put away for stuff like holidays, instalments, overpaying the mortgage, rainy day fund etc.

Now, the £450 is your freedom. Is it enough? Do you need to be earning more? Do you even have this £450? Do you have 6months worth of salaries in an ISA just in case you lose your job?
Investing is a pie in the sky for me, so I invest in my house and health. And what I can afford to lose in a stock and shares ISA 😏.

Does this give you a starting point?

If you don’t have savings or struggle to make ends meet then investing is not for you yet beyond a pension. I suggest you write a budget and start putting something away every month when you get paid. Make sure you are not paying out for stuff you don’t use, subs, gym subs etc etc. keep an eye on utilities and get costs as low as possible.

I can't invest as live on an ill health pension and benefits. I've settled on a way of managing my money that's best for my set up. I probably did the cost cutting first because then that automatically led to savings.
I have 3 accounts - all money goes into account A. I leave enough to pay all direct debits in this account.
What's left gets put between two accounts. Account B for everyday spending and account C for savings. It helps me monitor what I have for the month.
I have a list in my notes of all incoming/outgoings every month. I have calendar reminders to look into new deals when I come to the end of contracted deals. Which helps keep spending down.
Food shopping is a big one. I meal plan every meal, online shop (and push this to at least 10 days to stretch the budget out). I set a target of £50-60 every 10 days and an extra £10 during school holidays.
Things like doing the laundry to hang on the airer just before the heating goes on in winter or first thing in the summer to pop outside to dry. Switching lights/sockets off etc all save money.
Once I'd got everything organised it seemed to just become a habit (And much easier).

It's simple. You have to start right though. No credit cards , no store cards, smallest loans possible even if you can afford much higher ones (e.g big purchases, mortgage, car) no finance. Go without. Only buy what you can actually afford. Never buy things that are going to be a 'stretch' eg big house just because the lender encourages you to get a bigger mortgage.

You'll feel squeezed in the short term. But my god it'll pay off long term. Shorter term pain, long term gain.

That's broader advice, granted.

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The basic starting points are:

Understand your actual living costs.
Understand your spending.
Work out what your budget is, and live your life within it.
Then you can build up some cash savings to give you a ‘drat, didn’t see that one coming’ buffer.
Then that buffer gets big enough that you can use it on being more efficient with spending. Eg. Paying annually rather than monthly with interest. Buying multipacks. Avoiding using credit.

Then you’ve got those two sorted and you can start doing more exotic things with the bit between what you earn and what you spend on current life.

(also, understand your pension and tax situation).

The absolute basis is having a good household budget. I have one and review it a lot (bills ever changing, especially this time of year!!) List out what comes in (salary, etc) and what goes out, and what you have left. Then have a think about how you’d like to budget that remainder, and try and keep track of this across the month. There are great budget templates online these days if you’re no good with Excel so all you’re doing is filling it in. There are apps now too that help, but I’m still faithful to the humble spreadsheet.

I used to be CRAP with money, just spent and spent without thinking about it and the week before payday hoped for the best every time I presented my card. Used credit cards a lot - warning there, avoid these like the plague. Takes so long to pay them off. I’m in a very different place now and it’s so freeing being in control of your funds.

I think the best advice I can give you OP, is if you ever buy anything on credit, once you've finished paying for it, instead of thinking how much extra free cash you have each month, put the money into a savings account. I did this when I bought my first car on credit, when the final payment was eventually made, rather than, thinking 'Oh, I've got £150 more that I can blow each month', I transferred the monthly payment amount into a high interest savings account. By the time I needed a new car again, I had enough in the savings account to buy it outright.

Then, when we finally paid off our mortgage, we did the same thing, until we retired recently, which has given us a nice nest egg to help our pensions go further.

Write down all your outgoings and income. Go through each outgoing line by line and decide if you need it, and if you do can you get it cheaper. Money saving expert is great for helping you find cheaper options (it's great full stop to give you lots of advice). I take a day off work to do this every year as it's quite good to just do it all in one go. Call your broadband supplier and ask them for a cheaper deal (it's amazing how often this works). Turn on round ups on your bank account and then put that money in a separate account. Do the 1p savings challenge. These are all ways you can make small savings that will quickly add up. Don't get into the mindset that if you aren't saving £100s is not worth it. It's amazing how quickly it can add up.

Before you do anything else, you need to understand what you have and what you’re spending it on. So total all income, and keep a journal for 2-3 months of all expenses, and when you write a budget (if you get paid monthly, write an average month’s budget), make sure you include all annual and quarterly expenses (car tax, insurance, boiler service, haircuts etc) and include provision for it in your budget ie. Car tax / 12 to get your monthly amount that you effectively need to make sure you put aside.
Once you understand all the essentials you can assign buckets for spend on leisure, going out, clothes, general discretionary spends. Stuff you know you need / want to maintain your lifestyle.
Then you can see what you have left for saving. Depending on the amount left, you might want to divvy it up between different types of investing.

Another thing I would recommend, is when you get paid, work out what you need to leave in your bank for Direct Debit's, housing, etc. and take anything over and above that amount out in cash. Then sit down and work out how much you need each month for things like running your car, (or fares) clothes, shoes, etc., basically anything and EVERYTHING that you spend your money on. Look at how much cash you have, and decide how much of it you can afford to spend on each of these things, and put it all in separate envelopes, labelled 'Clothes', 'Car', 'Lunches', etc. I found that spending on credit cards meant that I never really knew how much money I'd spent, and I would sometimes be horrified when the bill came in at the end of the month. However, when you're actually spending cash, you can see when you've nearly run out, and it makes you think more about whether you can actually afford to buy that coffee on the way to work, or whatever. Hope I've explained it properly?

Mine is a single income household with a mortgage and it's tough to balance the books let alone invest (beyond the money that goes into my pension.) So I concentrate on budgetting and cost cutting.
After I pay my pension, my budget falls into three categories: Direct Debits, Savings and
Cash.

Direct Directs - all my priority bills

Savings - Short Term: to cover the cost of holidays, car maintenance, car insurance, CH servicing, routine vet fees, clothing and footwear. Divide annual cost by 12 and put this sum away.
- Long Term: to cover replacement of car, combi boiler, white goods, emergency household repairs. Calculate the cost of each and divide by the number of months left before it needs replacing.

Cash - to cover food, hair cut, social life, petrol, inexpensive treats and a small emergency fund.

Cost cutting/saving. This is an ongoing exercise. Eg I book my holidays the year before to achieve a discount. I pay my car insurance upfront (no additional cost for spreading it over 12 months.) I will spend an hour online searching for the best price for any purchase I'm looking to make (that saves me a lot of money.) Also, I buy the best quality I can afford because it lasts longer.

I work my budget out in December for the following year.

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I highly recommend reading a book called the Barefoot Investor.

https://www.barefootinvestor.com/about

It’s Australian so some of the references won’t work for the UK but the theory is universal. This way of looking at your finances has been literally life changing for many people- mine included.
It is the idea of allocating your income to a series of ‘buckets’ as soon as you’re paid.
And uses the snowball method of paying off any debts. There are some really supportive Facebook community groups too.
For the first time ever we are debt free and have savings. I just can’t recommend it highly enough.

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