Spend Less Than You Earn - And Be Positive About It

Spend less than you earn – and start being positive about it.

Hello, and welcome to Making Finance Work

Sooner or later you will have to go through your budget; you know, work out the income, subtract the outcome and invest the difference. This is where a good number of people become unstuck.


Sticking to a budget can be difficult; something I have recommended for a long time is allowing a contingency, being realistic and understanding that some months you may have an unexpected tyre explosion/last minute holiday/forgotten anniversary that you have to contend with.


Personally I allow 15% for a contingency but you must use what you feel comfortable with as with some investments you may not be able to pull money out of immediately.


Contingency aside, a typical budget must, must, must contain every expenditure that you envisage over the month, year, week or day. As tedious as it may seem, if you discipline yourself, then over the long term you will reap the benefits. In as little as a year you will already be considerably wealthier than you are now.


Every body’s budget will be different of course, but typically will factor:

Mortgage/Rent payments
Car Finance payments
Utility Bills
Mobile Phone bills
Social Occasions/Entertainment

Of course it is beyond the scope of this article to include every crevice and crack that your monthly wage will slip down after you earn it, but the more precise and honest that you are with yourself, the greater the prospect of success for you in the long term. It may shock you to see how much you actually spend in one area. Your car, for example may cost you a monthly finance repayment. But beyond that there is petrol, MOT’s, road tax, tyres, tolls and congestion charges in some areas, insurance and even air fresheners, so budget for this.


As tedious and as boring as it is, a good budget will put you on the path to understanding your spending which will help you realise your financial goals.

If, once you have completed your budget and you realise that your outgoings are more than your incomings, you are in trouble. There is the chance that you may be borrowing more to try and keep your head above water. This is a serious predicament and you should look at getting immediate advice. The Citizen’s Advice Bureau may be able to help, or a debt specialist. Whatever you do, do not pay for any advice or debt restructuring plan. How can spending money help you get out of debt? Do not panic, you can sort this out as long as you take action. As difficult as it is, these things will not disappear. Mortgage and Council Tax payments are the most vital payments to make.


Once you have worked out your budget, the surplus should be used to pay off any debt that isn’t free, i.e. anything that incurs an interest rate. It is up to you if you if you include your mortgage in this, take a look at The Rule Of 72, work out how much extra payments on top of your mortgage will cut it short and decide for yourself.


Working out and calculating a budget may be tedious or even downright boring, but adhering to it and sticking to it can be relatively easy to do. The key to success is being as realistic as possible. If you like having a skinny latte on the way to work, the newspapers delivered or eat out every Tuesday then budget for it. For it are these things that we often don’t budget for, we sometimes seem to look at the larger bills and ignore the smaller purchases. Do not succumb to this.


In fact, you may look at your budget and decide that you do not like what you see; you may wish to remove the newspapers and eat out every other Tuesday. If you decide to do this then make sure the money goes towards reducing a debt or investment, but make sure that it doesn’t depress you or leave you with a feeling of sacrifice. There is differing opinion on whether saving a pound a day or so on a certain little pleasure will help you become richer quicker. Theoretically it probably will, but at what cost? If you are demotivated or depressed at having to live too frugally then this will affect your ability to be positive when working towards your financial goals, but as ever, it is totally up to you.


After a couple of months you will start to see a difference in the way you handle your finances and this is an important step that will become second nature. Understanding your relationship with money and your spending habits allows you to step back and add an element of professionalism and strategy to finance. Observe and control your debt reduction and investment and watch the debt dwindle and investment grow. As you do, get as excited as you wish, you are taking very real and very positive steps here to financial wealth and health.


Speak soon

Oliver Jones
Making Finance Work