Category: Finance

10 Steps to Revolutionising your Finances in a Year

By Paul, co-founder of energy price comparison company energyhelpline.com.

I’m aware that ‘revolutionise’ is a big word – but I mean it!  You can significantly enhance your financial position if you follow these 10 steps. But be aware this is not an immediate fix – it will take you a whole year; firstly because some of your big bills will be annual ones and secondly, you’ll need to practice and learn new spending habits and it can take time for these to come naturally.

Step 1. Work out where you currently spend your money

It’s surprising how many of us don’t really understand how we spend our money in any detail. But unless we know how much we spend, what we spend on and how often we spend on different things it’s impossible to really make your money go further.

The key source documents for this exercise are your bank and credit card statements. Spend some time working out your current spending patterns. Ideally, you want to look through statements that cover a 12-month period.

You should write down the main areas where you spend money. Break your spending into the following types of categories:

  • Home accommodation (mortgage, rent, council tax)
  • Utilities (gas, electricity, home phone, broadband, mobile, water)
  • Insurance (car, home, life)
  • Transport (car, fuel, train tickets)
  • Food and grocery
  • Clothes / shoes etc
  • Holidays
  • Entertainments (pubs, restaurants, cinema, theatre etc)
  • Savings

You may also wish to add other categories that reflect your own personal spending patterns. Remember that this won’t work unless you are completely honest with yourself.

At the end of this exercise you should have a good understanding of how you spend your money each month and any major expenditure items that occur through the year.

Step 2 – Define your goals

This is a key step if you want to revolutionise your finances, giving you a much better position after a year. In this step I cover two different aspects.

  • Purpose: the reason why you are revolutionising your finances
  • Goals: the savings you want to achieve

Purpose:

Unless you are clear about what you want to achieve you won’t be making many savings. Sorting out your finances is just like starting a diet. If you start to diet with a clear commitment to reduce your weight you are more likely to achieve your goal. Knowing you want to lose weight to fit into a smart suit for your daughter’s wedding means you are more likely to shed those pounds than just feeling you should cut down a bit. Sorting out your finances is the same. You need to be clear about why you are doing it and what you want to achieve. Knowing that you want to save more for your retirement or have more funds available for holidays are examples of strong reasons for overhauling your finances. Think through the drivers for you and make them explicit.

Goals:

Having worked out where you spend your money you should have a good feeling for the savings you could make and where you think savings could be available and roughly the scale of the savings you plan to aim for

Get your goals clear in your mind and if you have a partner, agree those goals with them because everyone in your household will be affected by these choices and will need to support them for it to work.

Tip: My tip is to communicate your purpose and goals to your friends and family. This way they will understand any choices you have made that impact them. For example, if you decide to reduce the number of times you meet with people socially each month, they will then understand that you are not being less friendly but working towards a goal. Indeed, they may even support you in this by suggesting you swap expensive nights out with invitations to spend time together in each other’s homes.

Step 3 – Set up a 12-month calendar

Many areas of expenditure can be assessed on a monthly basis. For example, you probably buy food regularly throughout the month. If you have looked through your statements you should know how much you typically spend monthly on food. Each time you go shopping you can take whatever actions you have committed to that reduce the cost of your food shop. At the end of each month you should be able to realise savings.

The 12-month calendar helps you address the two other main types of spend:

Monthly expenditure

This includes anything that is part of a longer-term contract that comes to an end at a renewal date. Examples are likely to include your home phone, broadband, energy bills, insurances and so on. Many of the things you pay by direct debit will fall into this category

Annual expenditure

For example, I pay for my car insurance annually as this works out cheaper than paying monthly by direct debit. When you go through your bank statement check if you have bills that only show up once per year.

The reason for making a calendar is that you need to take actions at the appropriate time of the year on annual bills and those with a term contract. This way you will avoid any penalty charges that may be applied if you leave a contract early. You can also avoid being rolled onto a more expensive deal when a contract comes to an end.

It doesn’t matter if you make your calendar on a piece of paper and stick it on your fridge or if you create an electronic document you access from your laptop or tablet. Do whatever works best for you. You need to ensure that the outcome is that every month you know which bills you should focus on. You could even set reminders on your phone.

Step 4 – Stop buying things you don’t need

You can cut out all spending on purchases for discretionary items. These typically include:

  • Non work-related travel
  • Holidays and entertainment spend
  • Items in your grocery shop
  • Many purchases of clothes
  • Money spent on hobbies
  • Charity donations
  • Treats

You should make a very honest list of all your discretionary spend items. Depending on your goals you can then be as ruthless as you want.

Step 5 – Reduce the amount you consume

Money spent socialising is often the thing that is reduced rather than stopped. After all, sorting out your finances doesn’t mean you have to lead a boring and unhappy life!

Step 6 – Switch utility and insurance providers

Switching to a cheaper option on all energy bills, broadband, car insurance, home insurances etc will make an enormous difference.

Why does switching save you money?

The answer to this question is simple. The services mentioned above are all provided by fairly big companies. While there is competition in the markets for these services this works for customers who are active in the market. These big companies don’t reward you for your loyalty! Indeed, they take the opposite approach and exploit your loyalty – often charging you a loyalty premium. This means you pay significantly more for the same service than a new customer would.

Getting ready to switch – know your key contract terms

Before you start switching its good to know a few key details. Understanding the main terms of your current deals will help you make good decisions

In Step 3) you will have set up your 12-month calendar. This should tell you when your current deals expire. As a rough guideline you should start to look around or a new deal about a month before this date.

You should also look at any exit penalties built into the contracts you have. For example, you might find that if you have a dual fuel deal with your energy supplier for both your gas and electricity there is a penalty for leaving early for each fuel

Once you know the value of any exit penalties you can take this into account when looking at the market.

Look at the whole market – and use price comparison. Price comparison tools are free for consumers to use. They have created algorithms that let people easily compare prices and services from a range of providers. They get paid by the company you sign up to and will try to re-market to you when the service you take out comes to term. For example, if you sign up for a new car insurance deal through a price comparison company, they will contact you in about 11 months when it is time for you to renew your policy, doing a lot of the hard work for you.

We have partnered with ENERGY HELPLINE (ADD THE AFFILIATE LINK) Go to their site to see where you could start making immediate savings.

Step 7 – Choose cheaper options

Moving to ‘cheaper options’ is something you can do across the full range of your purchases.

Deciding to leave the £10 bottle of wine on the shelf and pick up the supermarket own branded equivalent for half the price is something we can all do.

Rather than spending money on your weekly or daily newspapers, switch to the online version. Consider your subscriptions to TV online – do you need to pay monthly for Netflix or Sky? Or could you make do with free to view TV or pay-as-you go?

Don’t pay more than you need to for everyday items. Being smart enough to buy a supermarket’s own brand give you some considerable savings. For example, buying Nurofen will cost you £2.66

for 16 200mg ibuprofen tablets. But if you buy a generic ibuprofen pack like these at 17p for the same amount of tablets – you are saving nearly £3 for the same product!

Step 8 – Apply the 30-day rule

This is one of my favourite tips. I used to be a pretty impulsive shopper and when I read about this discipline 15 years or so ago didn’t think that it would work for me. However, I can confirm that for me this is one of the best ways to limit how much I spend!

Basically, if there is something new you would like to buy, have the discipline to wait 30 days before purchasing.

If after 30 days you still really want it, treat yourself, go and buy it. It’s amazing how many times this discipline leads to you realising that you didn’t actually want or need something. Without waiting you would have spent money on something you didn’t need and probably would hardly ever use.

Step 9 – Use cash back sites

For anyone who doesn’t use these sites they can be a revelation! They are quick and easy to use, so don’t worry if you’re not familiar with them.

The two sites with the best deals and widest range of offers are: Topcashback and Quidco

You have to sign up to the cashback site (this is free for the two sites recommended). Then log in and search for the online retailer you want to buy from. If it’s listed, click the cashback site’s link to visit that company.

Your visit is then tracked. If you buy something, an amount is put into your cashback site account once the transaction’s processed. You can withdraw this once it arrives. This usually takes a few weeks.

The cash-back sums range from small amounts for groceries to more than £100 for some mobile, broadband or energy contracts. Why would you NOT do this!?

Step 10 – Review progress and set new goals

You should review progress each month.  Do this with your partner or family – and remember, be honest! If you are not hitting your goals you need to review whether your purpose is a strong enough motivator to change behaviour.

If it isn’t you need to be harder on yourself.

If your purpose is compelling, your goals are stretching, and you keep yourself on track there is no reason why you cannot save several thousands of pounds per year.

Let us know how you get on – we love to hear success stories from the community.

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