By Julie Lord - Magenta Financial Planning

Most of the questions we are asked here at LifeBuddy regarding finances relate to having enough money either for essentials, like the rent and bills or lifestyle choices like holidays and providing the kids with the best kit, or those lifes financial emergencies, the car, washing machine, plumbing, whatever it may be, packing in and requiring replacing. 

Unfortunately, the truth is , that when people's outgoings are so close to their income there is little room for them to pay for good financial advice and so they are left to pick up (often conflicting and inaccurate) snippets of information from the press, or from often ill-informed friends and family.

So what advice can we give that is free, simple to implement and effective?

I have 3 main tips, 2 of which are common sense but often ignored in the pressure of normal living:

1. Don’t do it!
Keep debts to a minimum and do not spend more that you can afford.

Social media is responsible for making us feel that everyone else is having a great time and it is therefore understandable that as human beings we experience FOMO (the fear of missing out.) We also want to go on holiday and give our children the same things as others appear to have.

But wait a minute - just stop and think! If the majority of questions  are about the same financial concerns, just who are these people who have these great lifestyles that we envy and (crucial question!) how are they able to afford them without using the credit card or loans?

The statistics for domestic debt in the UK are frightening - don’t fall into the same trap and leave yourself at the mercy of high interest payments for years into the future.

Explain to older children that if they want a new pair of trainers you may have to go into debt to pay for them - it is a good start to their financial education and an early reality check. Work through the maths with them - a £100 pair of trainers bought with a credit card at 24% interest may end up costing £124 etc. Bigger numbers are much more scary!

Younger children are as happy on the beach at Barry Island as they are in the Caribbean. Don’t put yourself under financial pressure just to keep up with others.

2. Budget, budget, budget!
Such a simple thing to do - but rarely done regularly despite best intentions.

Firstly go backwards so you can get a handle on past spending. 3 months should be far enough to see a pattern. Write down how much income you have had each month and then write down everything you have spent. This is easier to track if you spend everything on cards rather than cash.

Once you have surprised yourself with his past information, you are ready to go forward. Based on past spending, give yourself an allowance for future spending in different categories - eg food; bills; rent/mortgage; travel, children etc and write down everything you spend each day. You will only need to do this for a few weeks to get into good habits - when you know you have to write things down, it allows you to ask the question “do I really need to buy this?”

If you know you have poor financial discipline, take a fixed sum of cash from the bank each week and ONLY spend this amount. No cards or dipping into other accounts.

Recently we did some work for a client and calculated that if she didn’t have a latte and muffin from Starbucks every morning, she would be able to pay off her mortgage 5 years earlier!

Significant savings can be made by stopping smoking; painting your own nails instead of having gels every 2 weeks; making food for the week in advance etc etc. Different people have different values and priorities and it is for them to decide where and how they can save money. Consider turning down the heating dial

Many people are not familiar with the concept of “pay yourself first” but this is great advice. In simple terms it means that after all your essentials, you should pay yourself (ie save something into your bank, ISA , pension etc) BEFORE you give some money to Wetherspoons or M&S or John Lewis or Nando’s etc. Paying yourself first is the only way you will always have savings. If you pay everyone else first and rely on the leftovers, you will always be living on the edge.
This strategy will help to build up emergency funds so that you don’t have to worry about unexpected expenditure like a new boiler etc.

3. Round it up!
Everyone should aim to save (or pay themselves first) at least 10% of their income each month.

For some this will seem like an impossible task but with careful budgeting it is feasible.

For those who have never been able to save anything, you need to start small but with good intentions. Thankfully new technology has made regular saving of small amounts very easy.

We like an app called Moneybox which allows you to save your spare change. From your morning coffee to last night's Uber, the app rounds up your everyday purchases to the nearest pound and invests the change. As an example, if you spend £2.40 on a coffee using your debit card, Moneybox will round this up to the nearest pound and invest 60p.

Most people will not even notice these small sums but you will be surprised how quickly they can mount up to create a good emergency fund, or university fund etc.

Take a look at https://www.moneyboxapp.com/

One thing that strikes me as unusual in the questions is the use of the word “unexpected.” Nothing is really unexpected - tyres need replacing, boilers break down, children need new shoes, insurance needs paying etc etc - these are just the running costs of our life and we need to be better organised and prepared for them.

We would recommend always maintaining an emergency fund of at least 3 months normal expenditure held somewhere in cash. This will provide a cushion and make life a lot less stressful.

There are lots of online resources that have money saving tips including the consumer champion Martin Lewis of Money Saving Expert. Don’t be afraid to research these to help you take control of your finances.

Interestingly, recent figures from the Citizens Advice Bureau, show that there are 5.4 million people in the UK who can afford to pay for financial advice but who choose not to seek it out.

So finally, if you want even some basic guidance, get some advice - most advisers will offer a free meeting to see if they can help. This will not commit you to doing anything that you don’t want to, but might make an enormous difference to your financial position, both immediately and in the future.

If you are currently looking for advice, please take a look at the Magenta website by clicking here and see if you think they could be the perfect match for you!  

Julie Lord is CEO of Magenta Financial Planning and is always happy to provide basic financial information to help people to get a better handle on their finances and the possible solutions available to them to improve their future security and happiness.

t: 01656 760670

​w: www.magentafp.com 

Magenta Financial Planning is Authorised and Regulated by the Financial Conduct Authority.