Automate your finances and live stress-free in 2024

Join me on my annual financial reset

Every year on January 1st I do a financial reset — it’s normally the last day off in the no man’s land after Christmas, and a time when I want to do something gently good for myself. I thought I’d share my process in case it’s helpful for others. My planning is relatively painless, and every year I come back to it because it erases some uncertainty in my life and sets me up well for the year.

Ultimately, the goal is to put your spending in one place, see how much of your salary goes towards wants versus needs, recalibrate, and set up automated transfers so you don’t have to think about how much you’re allowed to spend in various places for the whole rest of the year.

My process is relatively straightforward:

• Write down your essential spending
• Write down big commitments for the year
• Write down your ‘nice-to-haves’
• Calibrate your savings goal
• Set up transfers to automate your goals

Let’s dive in:

Write down your essential spending

One of the most basic things people hear about when it comes to personal finance is the 50–30–20 rule. This rule recommends that you put 50% of your money towards needs, 30% towards wants, and 20% towards savings. This is generally the rule I try to follow, with a goal of shifting the savings goal a little higher.

In the first part of the financial reset exercise, we’re trying to nail down the biggest chunk of our spending — the 50% that’s going towards your essential needs. I normally bucket this spending into categories, and I’ve found the following work well:

• Accommodation costs: rent/mortgage, building insurance, contents insurance, fees, property tax, council tax, etc.
• Communications: internet and phone plans
• Transport: car payment, subway card, insurance
• Healthcare: dentist, doctor, eye doctor, physio, and any other specialists you need to see
• Groceries
• Pet care/ child care (optional): daycare, vet bills, pet food and treets, insurance

I’m sure this isn’t an exhaustive list, but it’s meant to give you an idea of the kinds of things that fall under essential spending. Many of these costs are monthly, but a lot are annual. However, what’s crucial in financial planning is to break each cost into its monthly value. Ultimately, the goal of this exercise is to know how much to set aside each month for our various categories of expenses so we won’t be surprised by the one-off charges. Here’s a breakdown of what my monthly spending looks like:

Once you have a long list of expenses, sum them together and divide them by your salary — I found that my essential spending was 32% of my salary. This is great! It means I have a little wiggle room for either additional spending or savings. However, if you find your essential spending is higher than the 50% threshold, take a moment to think about what needs to take a hit this year — spending or savings.

Write down your big commitments for the year

This is normally a step that’s missed out in budgeting reviews — it’s not always the case that every month is exactly identical. Some months you hibernate away and have lower spending, and others you need to ramp up the spend. However, if you plan for them in the year ahead, these bigger expenses won’t come as such a shock to your finances.

An example of what goes into the ‘big commitments’ section of my tracker is something like:

• Big trips: broken down into broad categories — flights, accommodation, car rental, spending money. This doesn’t need to be exact to be helpful — an approximation works. When I do this, I do a quick check on Skyscanner for flights, quick check on Kayak for car rental, and AirBnB for accommodation. It takes 5 minutes but puts me in a much more comfortable place.
• Home improvements: if you need to fix your roof or replace your fridge, include that into this section.
• Medical procedures: for me, an example of this was laser eye surgery — it was something I wanted to do for years so I include it on last year’s list. I wanted to go to a reputable institution, so it was a little more expensive, and I ensured I was saving up for this goal.

These costs are going to be accrued at a point in time instead of monthly, but we’re going to save for them on a monthly basis. For example, I have the following big commitments in 2024:

You can see that I need just under £3k to cover these costs — pretty steep at a point in time! But I’ve divided this by 12 to determine my monthly payments, and it’ll be much less painful for me to transfer £240.42 into a savings pot every month (automatically, without me having to think about it).

It might also make sense for you to divide your ‘big commitments’ into needs v. wants — the roof repair example would be a need, but a vacation might be a want — these might have to be recalibrated depending on what we find in the next section. However, the end goal remains the same — have one or two of these ‘monthly expense’ buckets for your big commitments at the end of the process.

We won’t set up the automated transfers just yet — first, we want to write out all of our nice-to-haves.

Write down your ‘nice-to-haves’

This is the category of spending that has the most wiggle room — but also the category where a lot of our joy comes from! As a reminder, spending in this category should be, on average, 30% of your monthly salary. We’ve already calculated a monthly cost to your ‘big ticket item’ nice-to-haves in the section above, and those will be added to the final tally in this section.

Other groupings that work in this category are:

• Shopping: this one is pretty self-explanatory.
• Eating out: if helpful, you can subdivide into more fine-grained categories, but I find this does the trick.
• Beauty maintenance: facials, nail appointments, hair appointments — any services in person.
• Concerts/ gigs/ club nights
• Entertainment subscriptions: we’re talking Netflix, Disney Plus, Apple TV Plus, Amazon Prime, Youtube Premium, Spotify… this category can really add up!

For a lot of these categories, it’s difficult to get a consistent monthly figure, and I wouldn’t focus on perfection. Instead, I’d try to get a ball park figure and maybe overestimate my spending to be safe. This step is made a lot easier if you have one account you use for spending, and particularly if you use one of the newer online banks (like Monzo or Revolut) which automatically bucket your purchases.

Here’s the breakdown of my monthly ‘wants’ spending:

Once you have a monthly figure, add your big commitment ‘wants’ and get a monthly figure — if it’s 30% of your salary or less, you’re good to go. If not, think about where you can make adjustments. A couple of examples:

• Can you reduce the amount you’re shopping — maybe commit to only buying replacements for current items for a month, quarter, etc.
• Can you make more meals at home? (Bonus: great for your health, especially since so many of us have health-related New Year’s resolutions!)
• Do you need all your subscriptions? Can you give up one or two?
• Is there anything you can buy second-hand or get for free on Facebook marketplace?

Since you have all of your finances laid out at this step, it’s a great place to interrogate each line item and see if it’s in line with the life you hope to lead.

Case study: the better deals I’ve found

It can often be difficult to imagine where you can find better offers, so I thought I’d share an example of the changes I’ve made in my finances for 2024:

• 💳 Downgraded my Amex Gold: this credit card had an annual fee of £250, and in the end I didn’t use very many of its perks. I signed up when the card was free for a year, but since I was going to be charged if I continued with it, I decided to downgrade to the Amex Membership Rewards card. I still have the same credit, the same account number, and the same insurance perks, as well as all my credit history saved, but with none of the fees.
• 📲 Changed my phone plan: I was on a 20GB data plan for £7.95, which is a pretty good deal already. However, I had a quick browse of Money Saving Expert’s Best SIM-only Deals and found that my same provider was now providing 50GB for £7.95! No financial savings for this switch, but I do get more bang for my buck. I also realised I didn’t have a limit to the overspend on my phone plan, so I set that limit to £0 so I don’t accidentally get burned on a trip.
• 📚 Joined the library: I realised I spend a ton of money on eBooks and audiobooks, and that I can rent these for free from home with a library card! Libraries have definitely evolved since I remember them as a kid — some even allow you to rent out kitchen appliances! Definitely worth spending 10 minutes to check out if this is right for you.

Calibrate your savings goal

At this point, you should have done the following:

• Determined the percent of your salary going towards needs
• Determined your big commitments (both needs and wants)
• Determined the percent of your salary going towards wants
• If your needs or wants were beyond our 50% and 30% thresholds, brainstormed places where you can make savings

We now have two things in place that will help us with the final steps of our financial planning:

1. Monthly ‘need’ spending and ‘want’ spending totals (including your big commitments)
2. The monthly amount you can commit to saving (should be at least 20% of your salary, but do what works best for you!)

In terms of the savings amount, at this point we want to automate our savings. First, you want to decide what you want to do with your savings. There are a medley of options, but I’ve distilled it into two simple options that help your money grow:

1. If you have a really low risk tolerance, put your savings into a high interest savings account. In the UK, you can use Money Saving Expert’s Best Savings Account ratings to determine what works best for the level of accessibility you need to your funds.
2. If you have a medium risk tolerance, put your savings into a Vanguard index fund. An index fund tracks the market, so you don’t need to know a lot to feel confident in your investment — choose a fund in line with your risk tolerance, from 1–7, and park your money there.

Now that you’ve made your decision, here’s the crucial step: set up a direct debit to your savings option of choice the day after your payday. This way, your money is automatically saved and doesn’t require any willpower from you.

Automate the rest of it

In the last section we talked about automating your savings pot. But really, you should be automating and allocating as much of your finances as possible. This is the secret sauce that keeps you in charge of your spending, even if you don’t remember the numbers.

We figure out the numbers during our financial reset, so that the rest of the year you don’t have to worry about your spending.

Here’s how you should set yourself up the rest of the year. The day you get paid, or the day after you get paid, you should be automating two transfers:

1. Transfer your savings amount to either your high interest savings account or Vanguard.
2. Tranfer your spending money, including ‘big commitments’ into an account that’s only used for spending.

If it’s available to you (and if it’s not, I recommend getting an additional account that can do this), separate your spending money into a few pots. For example, I have the following pots separate from my general spending money:

• Beauty treatments
• Big commitments for the year

You can get as granular with this as you’d like — I find intense specificity restricts me a little bit too much — e.g. if I had one bucket for ‘eating out’ and another for ‘shopping’ I don’t think that would be helpful. There are some months where I shop more and some where I eat more, and I want to keep that flexibility in my spending. However, for me personal care is a non-negotiable, so I want to make sure I always have money to get my roots touched up or fix my nails.

Conclusion

At this point you should have the tools you need to take control of your finances for the year. Really, when it comes down to it, this process is a simple one. It’s about getting to know your current state of affairs, making small adjustments so you have the right ratios in your spending versus savings, taking a quick minute to think about your goals and priorities for the year, and then automating all the hard stuff so you don’t have to think about it anymore.

Here’s my final monthly salary breakdown for 2024:

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