Frugal Friday...

This time of year is famed for people having their "Lightbulb moment"  in relation to debt & finances - the "LBM" is something we refer to a lot over on the Money Saving Expert forums - it simply refers to the point at which someone has that blinding realisation that their situation is not a good one and that they really want to do something about it. It takes different forms for different folks - for some people it is a sinking acknowledgement that if they don't sort things RIGHT NOW they are going to go under, while others may find that it arrives as a more gradual thing of thinking "I don't like where I'm heading and I want to sort it out". Ours - over 10 years ago now - was as simple as stopping looking only at the immediate and starting to think ahead - that made us realise how much money we were wasting each month on paying off a loan, and on overdraft fees. In real terms we had enough money to go around, we just weren't handling it well.

For the person who has just felt that lightbulb blaze into life, things can feel incredibly daunting - and one of the reasons for a lot of people backing off at that stage is a total lack of any idea where to go next with sorting things out.  If you've spent years financing things with credit, and thinking of that as "just what people do" then to change that mindset to "I don't want to use credit any more" can be a huge step to take. When you DO reach that point of no longer needing to rely on the cards though, it's the most incredibly rewarding feeling!

The first step to take is not to change anything until you have all the information you need to do it properly - and this can feel counter-intuitive when you're just desperate to start putting your new-found enthusiasm for all things money-saving into use! The good news is that the first stage needn't take all that long, leaving you free to crack on with changes that genuinely will change the way you live your life. A "Statement of Affairs" or SOA sounds terrifying, but in fact is as simple as a full list of everything you have to spend money on, and some of the things that you want to spend on too. For most people it will work best to look at a month as the time period - as this accounts for the majority of bills being paid monthly. Remember also though to account for the things that you pay out less often than that - and at this time of year, don't forget the Council Tax which many people will not have paid for the past couple of months! A good way of doing it is to brainstorm to start with, perhaps using one of the calculators found online (see MoneySavingExpert.com for more info on this) and then to use bank statements and credit card bills to fill in any gaps. That also helps you get a better grasp of what you're really spending for things like food, and entertainment, that often go out in small sums here and there. Last week's £20 supermarket "main shop" spend may look wonderful, but it may also not be representative of a "regular" week in your life, so it pays to work these things out with a bit more attention. The SOA, once completed, give you both your starting point for change, AND your ongoing monthly budget - it is not a static document - quite the opposite, it should evolve and change as time goes on and you identify more and more changes that you could make.

Once you have your budget, live with it for a couple of months to see how it feels, this also lets you pick up on any areas where you've not been realistic at the first pass. During this time begin the process of stopping to think before you spend, and also start to set up a framework that will help you going forwards. If you have a car, then a regular monthly transfer into a savings account for the things you pay annually for it might be a good idea - so think insurance, road tax, MoT Test, servicing, tyres and other consumables. Add a bit extra on top for contingencies. If you currently pay for your road tax, or insurance, in monthly installments then aim to switch to paying annually as soon as you can as this method of payment costs extra.  If you have any debts then this is also a good time to start diverting any excess money that you've identified over to the most expensive debt too - usually the most expensive will be the one with the highest interest rate - if all your debt in on 0% then it is generally the debt where that 0% rate will be ending the soonest. You should also think about using the same "setting aside" method as described for car expenses, for things like holiday, Christmas expenditure and unexpected household expenses.

Ten places it's worth looking for the possibility of savings:
1)  Are you on the best possible deal for your gas & electric? Have you done a comparison lately to check? it's dead easy, and requires pretty much zero effort from you to actually change suppliers if you find you're being charged too much.
2)  If you're not in contract with whoever you use for our telephone, broadband & TV package if you pay for these, then give them a call and say you're unhappy with their charges - most will reduce your payments in exchange for you signing up for a new contracted period. 
3)  Are you paying the right amount for your car and home insurances? (Clue - if you have let these auto-renew then you're almost certainly paying over the odds!) Do a price comparison and review.
4)  Are you paying fees for an overdraft? If so, and your SOA shows a surplus, then work on avoiding use of the overdraft to start with, and so cutting these fees entirely!
5)  Think about your food waste - not only does this cost money it's also appallingly bad for the environment. Meal planning and a "Fridge audit" before shopping trips can help with this - why not make dinner the night before you shop one where you routinely use up anything left over from the previous week that needs using up?
6)  Keep a spending diary - this will note the little random spends that usually go unnoticed. 
7)  Step away from contactless - while you may choose to continue using a card (debit, ideally, unless you have a cashback credit card that you clear IN FULL every month) for your main shopping each week, why not withdraw cash for those little "pint of milk" visits to the supermarket - spending physical cash often makes us more mindful of what we're spending, while using Contactless tends to have the opposite effect.
8)  Add up every penny you have spent on non-essentials for the past month - the figure may frighten you! If you have debt then aim to bring this figure down as far as possible, if not then you can still stop and think, do you need it, will you use it, is it worth what you're about to pay for it. This is about making sure that the money you spend has value, rather than "not spending" as such.
9)  Think whether you may be able to reduce costs like travel that you've always viewed as set in stone. Does getting off the tube, train or bus on your commute make a difference to the cost of the fare? can you park a little further away and park for free rather than using the pricey multi-storey car park? Can you combine journeys, so shop on the way home from work for example, rather than taking the car out for a special trip?
10) Think twice about takeaways. And those easy pre-prepared foods that you may have fallen into the habit of buying when you shop.  A news article this week informed us that "Chinese takeaway food is full of salt!" - well I have no idea about you but that was a bit of a non-story as far as I'm concerned - anyone who's stopped to actually taste what they are eating will not have been taken by surprise buy this news. We'll continue to eat it though because a takeaway is a treat, not a habit - and if we have two of them in a month that's a rarity. Ditch the sense of entitlement about "I deserve this" after a long day, make sure you have some super-quick to prepare good stuff in at home, and your purse AND your waistline will probably thank you!

There's plenty more ways of making savings - but those 10 are relatively low effort and can achieve huge "quick fix" surpluses in your monthly budget, so that's where I'd always urge people to start looking.   If you have debt, at the end of the month transfer 75% of any surplus over to the most expensive debt, and set aside the remaining 25% towards building an "emergency fund" - renters with no car should aim for £250 - £500, homeowners aim for £1000 - possibly a bit more if you have a car too - as a starting point. It is this "pot" of savings which will help you to avoid falling back into the trap of using credit - with the idea being that if the washing machine unexpectedly dies, you have cash sitting there waiting to spend on a repair or replacement, rather than reaching for the plastic.

Robyn