Matt saved £300+/month with these 3 simple steps
A few months ago, I helped a friend of mine, Matt, with his budgeting needs. He was trying to answer a very common question that most of us ask around the end of every month when opening the Barclays banking app: where did all my money go?!
He wasn’t the typical spender that would purchase any sneakers or gadget he found at the shopping centre, but rather a financially reasonable individual that did not have 100% control of his finances.
Matt came to me asking to analyse his expense history. I went through his bank statements and studied his data, and in 15 minutes we had already identified the issue: a main of UberEats, a side of Primark and a pinch of Starbucks.
I am not a qualified nutritionist, but I can almost certainly say that a diet based on five UberEats deliveries a week is not particularly macro-friendly, nor rich of vitamins. Beside the health repercussions, his diet decisions had a terrible impact on his wallet too. He justified his fast-food deliveries with “I come back home too late to cook…”. For the same reasons, he did not have time for butter and jam on a toast at home, and had to grab a £7 Mega-Ultra Spiced Hot Festive Chai Latte with soy milk and ice in Starbucks (or whatever was the other most expensive option on the menu). Moreover, he had the hobby of “changing style”, and this meant going shopping almost every weekend to find a specific colour of pants and other pieces of clothing.
Now, what I did for him was no sorcery. A few months ago, I had designed a personal budgeting tool that I was using to manage my finances. I was using this tool to categorise my expenses based on importance (Must have, Should have, Nice to have and, Unnecessary). This has helped me gather data and visualise what useless purchases I have fallen into every month so that I could avoid them next month. It’s incredible how powerful a simple excel spreadsheet can become if used to answer the right questions.
(I will write another article on this tool if you are more interested.)
I had this tool for quite some time in my “Projects” folder and as a proud owner, I was boasting about it to my old university friends, including Matt. After using my budgeting spreadsheet for his bank statements and witnessing its magic at work, he asked me to send him a copy of the tool. Needless to say, that Matt saved over £254.11 compared to his usual expenses in his first month using my budgeting tool and an additional £311.91 on his second month using it.
So why did it work?
Having a budgeting tool puts you in a different position to what you are used to. In today’s world, it is so simple to spend money: subscriptions come off your paycheck on the first day of each month, you can pay for anything without having money on yourself but just staring at your phone, and even when you are in negative balance, credit cards will accept your payments and tell you that being in red is “normal”.
Budgeting provides you control over your finances in 3 simple steps:
- SETTING UP YOUR EXPENSES IN ADVANCE
Budgeting is at the heart of saving money. If you are allocating money to all your expenses before the beginning of the month, you will already know how your money will be used. When budgeting, you should divide your expenses into bills (recurring payments), purchases (one-time buys), debts (debts you are covering) and savings (amount of money that will be in your pockets at the end of the month). By deciding in advance that you will allocate £600 for purchases, you will have drawn a strict line where you will stop your spending. - SEE YOUR PROFIT SHRINK AS YOU SPEND
Having a budgeting tool will evidence your potential profits and this will make you want to limit spending to keep more money in your bank account. The tool I had designed for Matt was giving a banner headline with his profit and he was doing his best to keep that number unchanged every week. Keep an eye on your bank account, rather than shutting it down, and develop a little hesitation before going to the till with a bunch of discounted clothes. If you are wondering where you can start saving money, I have 9 simple tips for your here. - DEVELOP A MORE RESPONSIBLE AND HEALTHIER RELATIONSHIP WITH YOUR FINANCES.
At the end of the day, no one will take care of your financial situation for you. Looking at your bank statements will make you cringe and regret some of your expenses, but it is essential to start to understand and learn from your mistakes.
I am not saying that you should not spend any money, but I think that giving yourself a target budget and deeply thinking about the essential products you need, while limiting the unnecessary treats, will help your wallet breath. Assigning importance levels like Matt did, represented a gigantic step for him. By realising that only a small percentage of your expenses are “Must haves” and “Should haves” you will see how much more could be saved. I try to limit my “Nice to have” expenses to 25% of my total expenses and the “Unnecessary” below 5% and as close as possible to inexistent. By knowing that all my expenses are important to myself, I feel more at peace with my bank account. Moreover, I have been able to save money and invest in products that are truly important for myself, such as online programming courses.
Hey, let’s be honest… How much did you spend over the past twelve months into products that you would rank “Unnecessary”? Are most of your expenses “Must haves” or “Should haves”? If you are sure about the numbers, please do check your bank statements; and if you don’t feel so good about your expenses, you can start fresh in 2023. Start with a simple budgeting tool and improve one month at the time. I am sure you will do as well as Matt did.
Wishing you happy savings in 2023!
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