A Simple 5-Step Plan for Managing Your Outgoings
If you’ve buthen you’ll already understand the importance of managing your outgoings so you can avoid any “nasty surprises”.
Fortunately managing your outgoings doesn’t have to be as difficult or as boring as you may first think. Within just an hour or two of light work you can quickly gain a better understanding of your spending as well as formatting a simple plan for staying in credit while still enjoying life.
Review Your Bank Statements
Experts tell us that we can’t manage something if we can’t monitor it. After all, if you don’t know how much money you’re spending each month – or you don’t know what you’re actually spending it on – then it can be very difficult to get a firm hold on your finances.
A good starting off point therefore is to grab some recent bank statements and analyse them in detail. Using a pen and pad or a highlighter pen try categorising your purchases so you can gain a greater insight into the sums of money you’re spending on things like eating out, transport, utility bills and so on.
This can also be a highly enlightening exercise in that it enables you to see first-hand where your money is going. Many of us have a weakness that we squander money on without even realising it. For some it will be our daily visit to Starbucks, for others it can be newspapers or books or makeup. Consulting your bank statements will help you to gain a deeper understanding of what your own “money weakness” which, in turn, will make it far easier to control your spending.
Fixed Costs Versus Controllable Costs
The money we spend each month can be broadly separated into two groups; fixed costs and controllable costs. A fixed cost, not surprisingly, is one that remains the same each month such as your rent/mortgage. The sum of money you pay each month is pre-agreed and therefore is easy to budget for.
The other things you spend money on can be grouped as “controllable costs” because you have a degree of control over how much you spend on these expenses. An example of a controllable cost might be money that you spend on eating out in restaurants. It’s certainly nice to do, but you can reduce your monthly outgoings by going out less, selecting cheaper meals or by exploring more budget-conscious restaurants.
Consequently a smart idea for controlling your outgoings is to consider if there is any way to reduce your fixed costs. Could you, for example, negotiate lower rent with your landlord or consider moving to a cheaper property? Other options might include reducing your mobile phone tariff or visiting price-comparison sites to see how much money you can save on your utility bills by switching to new suppliers.
Once you’ve done all you can to reduce your fixed costs the next step is to automate these so that your bills are paid on time, every month without you having to think about it. Generally speaking, setting these payments to go out as soon after you get paid as possible is a smart idea because you will then know for certain that the money you have left in your account can be spent on your controllable costs.
Setting a Budget
Finally we reach arguably the most important aspect of all when it comes to managing your outgoings; namely setting up a budget for your controllable costs to ensure you stay “in the black” at all times.
You already know how much you earn each month, as well as the fixed costs that have to be met, and of course the difference between these two numbers of precisely how much you have available to you on a monthly basis.
They say it’s possible to eat an elephant if you take it a piece at a time and it’s a very similar story when it comes to personal finance. Managing large sums of money can be a challenge but breaking your budget down into smaller pieces can make staying in control of your outgoings far simpler. Some people may opt to create a weekly budget for their controllable costs while other people will find a daily budget easier to work with. There really is no “correct” answer here as we are all different so go with what feels right to you.