Understanding your financial position is the bedrock of smart money management. Without a clear grasp of your income, outgoings and expenses, it’s challenging to make informed decisions about your money. Our RiseUp community has shared some invaluable insights on this front, highlighting the importance of knowing where every penny goes.
Let’s dive into some practical advice on how to better understand your financial position, directly from our community members.
1. Track your spending to uncover hidden costs
One of the most common themes that came up was the importance of tracking expenses. “I rarely checked my bank statement and hadn’t looked at my Oyster statement for a while,” Ele said, discovering she had been overcharged due to a glitch. By scrutinising her expenses, she received a refund and gained a clearer picture of her actual spending.
Similarly, Lara discussed the importance of discipline in tracking holiday expenses. “I find my mindset shifts to ‘well I’m on holiday I need to enjoy myself.’ [It’s] definitely hard during summer.” By staying on top of things even during leisure time, you can avoid overspending.
2. Distinguish between fixed and variable expenses
Understanding the difference between fixed and variable expenses is key to managing your money. Fixed costs, such as rent, mortgages and utilities, remain consistent each month, whereas variable costs fluctuate based on usage and lifestyle choices.
Amelia highlighted a way to handle fixed costs efficiently, mentioning her electric car via a salary sacrifice scheme: “Morning travel is not one I really can save much on. [But] I save on higher rate tax and save on electricity via my Octopus smart tariff. It costs me about £50 a month in ‘fuel’ to 1k+ miles.” By being aware of and managing fixed costs like transport, Amelia maximises her savings on necessary expenses.
On the other hand, variable costs like groceries and eating out can be managed with awareness and planning. Daniela realised she had overspent on shopping and eating out: “My biggest spend this month was on shopping… I have overspent more this month than last month on eating out.” Recognising the difference between necessary and discretionary spending is the first step towards effective money management.
3. Use financial tools to gain clarity
Several people mentioned using apps and digital tools to keep their spending in check. “One thing that RiseUp flagged to me was how much higher my transport costs were than I thought they were. I rarely checked my bank statement and hadn’t looked at my Oyster statement for a while,” said Ele.
Using such tools can help you visualise your spending patterns, identify areas for improvement and ensure you’re living within your means.
4. Manage credit wisely
Credit cards can be both a blessing and a curse, depending on how they are used. “One thing I’m focusing on is reducing my spending on (and use of) credit cards,” Kate said. By being mindful of your credit card usage and only spending what you can afford to pay off in full each month, you can avoid falling into debt and incurring high-interest charges.
5. Use prepaid cards
Matt suggested the practical tip of limiting your discretionary spending by using prepaid cards for non-essential purchases: “Paying with the Starbucks app and only topping up a specific ‘treat’ amount each month so once the balance is down, there’s no more topping up until next month.” This method, similar to the cash envelope system, which involves withdrawing physical cash and only spending what you have, is a great way to control spending on non-essentials and ensure that you stick to your budget.
We hope these tips inspire you to take the first steps to gaining control of your money. Remember, every little bit counts, and those small savings can add up to something significant over the months and years.
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