A STEP-BY-STEP GUIDE TO SIMPLIFYING YOUR FINANCES
Sitting down to look at your bank balance and where your money goes each month might not sound very exciting but it’s vital if we want to manage our money, build up savings and stay out of debt. Simplifying your finances will make it so much easier, simpler and quicker to manage your money, pay your bills and avoid the build up of paperwork. Here’s a very simple, step-by-step guide to simplifying your finances.
WHY SIMPLIFY YOUR FINANCES?
We all need money to survive and planning what we do with our money (and how we manage it) is so important for several reasons:
- It makes it easier for you to keep track of your money and general financial situation without making it too complicated or time-consuming.
- You won’t be tempted to stick your head in the sand, hoping any money worries will go away because it’s all laid out in front of you, clearly and concisely, and you’re not going to get any nasty big surprises.
- Hopefully it will also avoid the stress of getting to the end of each month and wondering where all your money went. It will be easier for you to keep on top of how much you’re spending each month and budget accordingly.
- It will help reduce the build-up of stacks of paper because you’ll regularly sort and file your paperwork.
- You’re less likely to forget to pay bills and lose important documents because you’ll have procedures set up to make sure you don’t forget anything and places to securely store your paperwork afterwards.
- You can easily see how much money you’ve got to work with and, if you’re in debt, come up with a plan to pay it off.
What if I’m not good at maths or I hate spreadsheets?
Even if you’re not an expert on money matters or hate the thought of sitting down to work out budgets with spreadsheets, calculators and complicated maths, don’t despair! It’s perfectly possible to simplify your finances without it being complicated, time consuming or overwhelming.
Managing your money needn’t be complicated, time-consuming or scary if you simplify your finances and commit to reviewing them regularly.
STEP-BY-STEP GUIDE TO SIMPLIFYING YOUR FINANCES
Step #1 – Pick a time to go through things
Choose a time to sit down and go through your finances when you’re least likely to be interrupted by the kids. Do it one evening when the kids are in bed, or for an hour or so whilst they’re watching a film during the day. Make yourself a cuppa and sit down with the attitude that you CAN do this!
Step #2 – Your income
Make a list of all your monthly income. The list doesn’t need to be anything fancy. A spreadsheet is good, but a written list on a sheet of paper works just fine. Remember to include all your income otherwise you’ll be working on inaccurate figures and there’ll be little point in you doing this whole exercise.
On your list of income, you’ll want to include salaries, interest from savings accounts, any benefits you receive, maintenance payments and income from other sources. Go through your bank accounts and make a note of all the sources of income and how much. Remember that if you receive money weekly, then you’ll have to work out how much this equates to monthly to make sure your figures all tally.
Step #3 – Your outgoings
Now look at your outgoings and everything that you spend money out on during the month.
Once again go through your bank statements and make a note of all the money that goes out of your account. You’ll probably want to look at the last 12-month period in case you have anything that goes out annually in case it hasn’t appeared on a recent statement. Again, work out what these outgoings equate to on a monthly basis even if you only pay them annually.
Some things that you’ll want to look out for are mortgage or rent, utilities and services such as gas, electricity, water, your TV licence, phone and internet, anything to do with your car(s) such as tax, insurance and MOT, building and contents insurance on your home etc.
Also include how much you spend on childcare, after school activities, food, clothes and general living expenses. Look at any extra subscriptions you have going out and make sure you include these.
Make allowances and estimate allowances where needed for general home maintenance, for example boiler servicing or a new washing machine if your current one was to break down.
Do you have credit cards or a loan that you need to pay off or at least meet the minimum payment for each month? If so, you’ll need to include these here too.
Step #4 – Calculate how much you’ve got left each month
Work out how much your monthly income and outgoings come to and you’ll be able to see whether you’re in the red at the end of each month, whether you’ve got enough to live on and any extra that’s still left over.
Step #5 – Consider extras like savings, pensions etc
If your budget allows, try to put a little bit aside each month into a savings pot. You can also think about a private pension, life insurance and any other extras if you’ve got money spare.
You may want to consider putting a little bit aside each month to put towards a Christmas fund or for your summer holiday.
Now you know what money you’ve got coming in, what’s going out each month and the difference between the two.
Step #6 – Compare and switch where necessary
Be aware that if you have credit cards or loans, you’re probably being charged at quite high interest rates. It’s worth shopping around to see if you can get a better deal and take advantage of any balance transfer offers which mean you’ll pay less or no interest for an initial period of time.
It’s also worth taking the time to compare your gas and electricity bills, home and vehicle insurances with other providers to see if you can get a better deal and save yourself some money.
Step #7 – Budgeting your money
If money is tight, set yourself a monthly budget for each of your main outgoings. Try not to spend more than you’ve allocated for each budget area. If you do have to spend out more in one area one month, then see if you can make a saving somewhere else.
Don’t get caught up on trying to produce complicated spreadsheets. A simple list with columns using pen and paper will work fine. Just make sure you keep it updated and you can refer back to it easily.
Remember that this is all about simplifying and making it easier to manage your finances. For many people, money can be a scary subject so don’t try to do anything that’s going to make it even more off-putting for you!
But, even if you do struggle with all things financial, it’s still so much better to know exactly what your financial situation is, rather than ignoring it and hoping your money (or your debts) will manage themselves.
Don’t get enticed into buying things you don’t need because you see a great deal or are offered interest free credit or points and benefits on store cards. Stick to your guns and only buy what you need and can afford.
If you love shopping and find it difficult to resist temptation at the shops, then check out my post on Minimalism and shopping – 18 ways to shop with intention.
Step #8 – Making it easier to manage your money
The next step is to make managing your money that bit easier and simpler.
- Firstly, cancel any monthly payments that you no longer need (yet another gym membership anyone?!).
- Set up direct debits to pay as many bills as possible online. This will avoid the chance of you forgetting to pay something.
- Switch to paperless statements to prevent the build-up of paper bills if you’re not too good at filing them when they arrive in the post.
- Pay bills promptly and file any paper statements you do still receive in an organised way in a secure storage cabinet or drawer.
- Which bring us on to storage! Allocate a different folder or divider for each of your accounts or services and label each one clearly in a secure cabinet, box or drawer. Alternatively, you can take a photo and save the file electronically on your computer. Just remember to organise your digital files too, not just your paper ones! If you’ve switched to paperless statements and online banking and management of your main accounts and services, you shouldn’t receive too much paperwork in the post.
- If you deal with any paperwork that does come in the post as soon as it arrives then you shouldn’t get a build-up of paper piles.
Step #9 – Changing your outlook
Simplifying your life through Minimalism and living intentionally in general will change your outlook on what you want to buy and how you spend your money.
It may be that you still spend money but it’s on experiences rather than material possessions. But, over time, you’ll also begin to find that you don’t need to spend money to make you and your family happy. A walk in the park or kicking a football around may be just as good as a trip to the shops.
Check out my post on intentional living and 4 easy ways you can live with intention now for more information.
OTHER RESOURCES ON BUDGETING AND FAMILY FINANCE
There are loads of resources on the internet about money management for families, including planners and spreadsheets you can use for budgeting and much more. They are probably far more comprehensive than what I’ve covered in this post.
However, my aim here is to start you thinking about your finances and how you can feel more in control of where you spend your money and how you look after and manage it. By simplifying your finances, you can do all of this in a quick, easy and efficient way without it becoming a big deal. You might even save yourself some money too!