Friday, 21 June 2013

Frugal Friday

I have mentioned before the regular payments we have set up from our main bank account across to our various savings accounts, and I thought it might be of use or at least interest to some people to have a bit more detail of how we work all this out.

Docklands by night - 2007
Like most people, we used to cheerfully muddle from month to month with no real idea of how our incomings stacked against our outgoings. An unexpected bill, work needing doing on the cars etc would be a major problem, and things like insurances were spread across 12 monthly payments (at increased cost) to make them easier to manage. When a few years ago we decided that it was time to take things in hand, we were quite taken by surprise by the amounts of money that were just frittered away. It's easy for this sort of spending to creep up, and only when you actually take the time to stop and analyse your finances properly do you start to notice why there is a shortfall where there should be a profit!

With my self-employed income relying on when invoices get paid (my invoicing is always done for the last day of each month but there is invariably a small discrepancy with when clients actually pay) but MrEH's salary dropping into the bank on a set day each month, our Direct Debits (DD's) are split into two groups - one set paid on/around the 1st of each month, with the others being set to on/around the 15th. The cashback credit card DD is taken at the very end of the month, usually around the 26th. In addition on the 1st of the month a regular payment is set up for MrEH's personal money - from the joint account where his salary lands, back to his personal account. My Invoices are usually paid between the 5th - 10th of the month, but for tax purposes these payments head directly to my personal account. The very first thing I do before ANY of my income can be considered "ours" is remove 25% of it into a separate account - this covers my tax & NI contributions, and ensures that when payment for those becomes due I don't get into a muddle. If you are self employed you MUST do this - that money simply is NOT yours and should never be considered as such! Once that's taken account of I transfer over my contribution to our joint account, leaving my personal money for the month behind.

Millennium Bridge & St Pauls - 2006
As well as the standard DD's for mortgage, utilities, insurances etc, we have a few regular transfers to various online savings accounts. With 2 cars to run, there is a sizeable annual cost right there, so we transfer a lump sum each month to an account from which our servicing, insurance and road tax costs will be paid as they arise - this also includes an amount for "contingencies" like new tyres, and unexpected repairs. We also have a "Household" account which receives £25 per month - this covers home insurance and small items that need replacing. The food budget comes from our "ClubCard Plus" account with that well known supermarket beginning with the 20th letter of the alphabet - a monthly DD goes out for that and we have what is effectively a cash-card which we can spend on in-store and also use to withdraw money from cashpoints as well - for every pound we spend in-store using the card we get an extra Clubcard point too.  other savings accounts are set up from our Joint Account too and also receive monthly contributions - the Holiday account of course, one for Christmas spending, and one for general "fun" stuff which means that when we have a busy time there is a bit of cash there to dip into for things like weekends away or the costs incurred volunteering at the national Beer festival in August.  Personally I also transfer money into an account for fun stuff, and another more general savings account. General days out, trips away, birthday presents and the occasional treaty takeaway are paid for from our own personal spending money.

I mentioned insurances earlier on - and those pesky "easier payment options" that all the companies generally tend to offer - well of course they do, each time someone elects to pay their policy cost spread over a year the company gets an extra cut from the fees charged for this facility! The exceptions to this are generally life Insurance and Pet Insurance, both of which opt for monthly payments as standard and won't normaly charge any extra for this. If you're looking to "get your financial house in order" then my suggestion would be that one of the first things to prioritise is getting money set aside ready to pay car & home insurance policies "up front" at the start of the year. Likewise, if your TV license is currently paid on the old quarterly DD system, you're paying extra for this, too, so it's worth either paying upfront on that, or indeed getting swapped to the monthly DD instead which doesn't attract a fee.

City of London - 2008
Once all the DD's and regular payments into savings are accounted for, anything left in the Joint Account will pay whatever is owed on the Credit Card bill when that arrives. As the card is a cashback-paying one we work on the basis of using this for everything we possibly can, and paying it off in full each month. Finally, on the day before payday, any surplus in the account is taken as "free money" and can be transferred to our "mortgage overpayments pot" - this also applies to any "unexpected money" as I've mentioned before. We're restricted on the amount we can OP to the mortgage each year, and this year we will hit that limit, so we'll be transferring the money from that account over to the ISA each time it hits an agreed level.

So that's how WE do things - how do you arrange your finances? Have you only recently realised the benefit of setting aside money to cover the "just in case" stuff? Do you have a great long list of online savings accounts attached to your main bank account too?


(And yes, this is another of those "completely unrelated photos" posts!)


ButterflyBlue said...

Hi I've lurked for a while and do find your blog informative and interesting.

Now that OH and I are retired I need to keep a tighter grip on our finances and like your idea of separate 'pots' for saving. Do you open separate accounts for each pot or one pot with a spread sheet to show how much is in each?

Robyn said...

Hello - thanks for the comment! We're lucky in that our current accounts allow us to open additional online savings accounts linked to them - so we have a different physical account for each savings pot - I'd never keep track otherwise! The ISA is shunted around from year to year depending on who has the best rate, and that does have money in it from various different sources - so I keep a notebook for that which tells me what belongs where.

ButterflyBlue said...

Thanks for that I'll have to investigate and see if ours does the same.

Scarlet said...

We have a joint account which all forms of monthly income are paid into, I have my old student account, and we have a savings account which held all the money we had saved( rainy day money) before we moved house but which is now depleted. A standing order moves a set amount each month into the student account as we use that to save for road tax,MOT, insurance for house and car,all the stuff for our trip to the wedding and anything else that needs to be saved for/ unexpectedly paid for.I also pay cashback from purchases and any money made on the carboot/ebay into that account. I have a credit card which I use for online purchases ( insurance etc) which I pay off in full each time I use it.I just move the money to it from the student account by internet banking.

Robyn said...

I do think the different accounts make life so much easier, don't they. We usually use cashback from TopCashBack or similar to bolster the holiday account a bit, and the same applies to the annual rebate from the cashback credit card, too. I still do a few surveys here and there too, and those also go to the holiday account. I do swear by the regular transfer/standing order idea to feed savings accounts too - makes it far easier to keep track!