With inflation rocketing to 30-year highs and expected to peak at 8 per cent this spring, more people are being sucked into the cost-of-living crisis and wondering how they can tighten their belts.
Surging fuel, energy and food prices, higher taxes and rising interest rates mean that most consumers have already cut their spending on non-essentials, according to the ONS. But how many of us have the financial literacy to do this effectively?
It’s a serious failing that money management, saving and investing isn’t taught in schools. We have to learn as we go along – it’s no wonder people feel lost in the money maze due to misconceptions and financial jargon. I grew up on a council estate with my mother and siblings, a world away from the wealthy clients I advise today as a chartered financial planner. But I was lucky my parents worked hard to give me everything I needed and taught me that money wasn’t just for spending; more importantly, it was for saving.
After leaving college at 16, I became a cashier at a high-street bank, which introduced me to the world of debt and how it can have an impact on every aspect of people’s lives and relationships. I wanted to help with their money problems, and after two years I became a personal banker, a qualified mortgage adviser, and hit my dream role as a qualified financial adviser by the age of 21.
Now times are becoming tougher, I hope some of the tips from my new book The Money Edit can help those who are struggling not just with bills but also their financial confidence. The suggestions may seem obvious to some people, but that’s because there is no secret to any of this – just smart ways of doing the basics well.
If you need to take immediate action, think about what you can give up for a time to cope with inflation increases; it’s better to put some payments on pause, and see if you can later resume them, than suffer the pain as prices peak.
Don’t forget to look after your mental health if you face financial difficulties. If you cannot afford your daily living, you should seek emergency financial help; charities such as Step Change and Turn 2 Us can offer assistance or guidance. But hopefully, of course, it won’t come to that – especially if you can follow some of this advice.
Ten tips for reducing your non-essential spending
1. How to track what you spend
If you’re not sure where your money is going, you can spend hundreds of pounds a month without even realising it. If you track your spending, you’re more likely to consider purchases more carefully. Doing this for at least three months is typically the first step to effective budgeting because it indicates what you need to cut, but it’s good to continue in the long term. Write everything down in a notebook, create a spreadsheet or use an app – try Emma, Monzo or Money Dashboard – to boost your awareness and mindfulness on spending.
2. Making a budget that works
Living to a budget limit is not fun but it’s a good way to start controlling your spending. If you don’t want to account for every pound and penny, use a simplified approach such as the 50-30-20 rule: keep 50 per cent of your income for essentials, 30 can go on fun things, and set 20 aside for savings. If you are really struggling, you need to give every pound a job and don’t even let £1 escape. Make a detailed budget specifying how much you will spend and save. By allocating a budget for your enjoyable expenses, you are more likely to avoid overspending.
3. Top ways to avoid credit cards
Credit cards can give you false hope, making you believe you have enough money to spend, even when you don’t. Don’t get rid of your cards entirely, as they can help you develop and maintain a good credit history, and with large purchases they can ease your cash flow – as long as you pay off the balance straight away, before you’re charged interest. But to avoid temptation, make your credit cards inconvenient to access. Remove them from your purse or wallet and keep them at home. Also, avoid saving their details on websites so you can’t unconsciously spend. Go to settings on your phone or computer and remove all your payment history.
4. Install a 48-hour rule for purchases
Force yourself to delay for two days before buying things. It helps you make sure that you really need what you’re buying and won’t regret it, plus you can use that time to ensure you would get the best price for your money. Waiting 48 hours should be the minimum; the more you spend, the longer you should wait. How about two days for items below £100; five days for anything up to £500, and a week for anything more expensive?
5. Have no-spend days
A couple of days each month, aim to spend on nothing other than absolute essentials, such as food or basic living supplies – or if you’re really committed, have a no-spend day each week. You could also challenge yourself to see how many no-spend days you can have each month or how long you can keep them up – competing with your partner or friend to see who can save the most. They not only save you money but can help adjust your mindset over the long term, so you’re not just buying new things all the time.
6. Make better use of offers
There are some things you have to buy; the trick is to reduce spending while doing so. Be more active in seeking first-time purchase offers on websites, delay big purchases until sales are on, and be more flexible in what you buy to make the most of whatever is discounted in your supermarket that day.
7. Unsubscribe from tempting emails
Signing up for email offers from your favourite store may seem smart, especially if you get discounts, but they make you want to buy things you wouldn’t have seen otherwise. Avoid temptation.
8. Always shop with a list
To avoid impulse purchases, make a list of items you need to buy – and stick to it. A shopping list is common when popping to the supermarket, but it’s even more important when shopping online and facing targeted ads. Even if you’re buying one new jacket for work, write it down and don’t be swayed by other things you see.
9. Avoid shopping when you’re hungry
You’re probably aware that shopping at the supermarket on an empty stomach attracts you to impulse items. Well, a similar thing happens online. Researchers found that a department-store shopper who was hungry spent up to 60 per cent more on non-food products than shoppers who weren’t starving.
10. Control emotional spending
It’s easy to buy something you don’t need or even want when you’re stressed-out, bored or unhappy. But we also spend a lot when we’re happy: what did you buy yourself the last time you got a promotion, passed a test or hit a milestone age? There’s nothing wrong with deserved treats, as long as you can afford them. While avoiding emotional spending indefinitely is probably unrealistic, avoid it wherever possible.
‘The Money Edit: Your no blame, no shame guide to taking control of your money’ by Makala Green is out now (£16.99, Yellow Kite)