Christmas. It was great fun while it lasted; but when the festive spirit fizzles away, many of us are left feeling spent – mentally, physically and literally.
We raised our champagne flutes and toasted to a happy and prosperous New Year. We vowed not to repeat the same mistake we make every Christmas – which is, to overspend on food, pressies and all things festive.
According to research* published at the start of 2016 by the Money Advice Service, 28% of adults struggle to make ends meet in January after blowing their budget over the festive season, while 9% of Britons have fallen into debt or further debt as a result of overspending.
If those January blues are hitting hard because you’ve started 2017 off in the red, let this year be the year you take control of your spending...
Spontaneous vs reckless
- Treating your family to a spur-of-the-moment cinema trip and pub meal = spontaneous.
- Popping out for a pint of milk and returning with a new 85-inch TV = reckless.
Taking control of your spending needn’t involve you becoming a hermit and living off tins of beans. But you need to be able to determine what constitutes reckless spending.
Reckless spending is almost always the result of a heat-of-the-moment decision; an unplanned, impulse purchase where you hand over your credit card without thinking about the financial implications. And it’s these heat-of-the-moment decisions that could put a huge financial strain on you and your family.
Of course, too many spontaneous purchases could also mean that you don’t have much, if anything, to save at the end of the month, either.
Be less reckless
If you struggle to get money together every time you’re landed with a bill, you need to get to the bottom of what you’re spending money on. Look at last month’s bank statement: Did you splurge on clothes? Did you eat out a few too many times? Did you go overboard on Christmas gifts? Once you’ve identified where you need to curb spending, you could consider the following:
- Work out where you need to cut back. What non-essential purchases can you cut back on? Can you save money on lunch by preparing it at home? Could you spend a couple of days walking to work instead of catching the train? Are you really making the most of that gym membership?
- Set a budget. Work out a budget for the month, taking into account things like household bills, essential living costs, transport, etc. Having a budget in place will keep you on track, and you might have some spare cash at the end of the month.
- Pay with cash. Withdrawing cash for purchases will allow you to visualise your money, helping you to keep spending under control.
- Reduce temptation. Sounds simple, but out of sight, out of mind! If you know you need to cut back spending on clothes, resist the urge to visit your favourite clothes shop on the weekend!
The three magic questions
When you have financial responsibilities, you must strive to make planned, structured decisions about purchases. Remember the golden rule: think before you spend.
Here are the three magic questions you should ask yourself before any big purchase:
“Do I have enough in my savings?”
Another study* from the Money Advice Service, from September 2016, revealed that two in five members of the UK population have less than £100 in savings.
If you don’t have a lot of savings, consider putting those non-compulsory purchases on hold until you’ve built up a decent rainy day fund. There’s no magical amount you should aim to have as your rainy day fund, but as a rough guide, you could aim for at least three months’ essential living expenses – that should be enough to help you cope financially if your boiler went bust or you unexpectedly lost your job, for instance.
“Does my financial situation warrant this purchase?”
Your neighbours have just returned from a three-week trip to Barbados, and you and your partner have developed serious holiday envy. But before booking those flights, you should ask yourself, ‘Is this going to put us under financial pressure?’
Avoid rushing into big purchases; go away and think about, and talk it through with your partner to determine whether or not you can realistically afford it.
Think of your monthly outgoings – mortgage, bills, insurance, travel costs, etc. – to make sure your spending matches your priorities. Don’t splurge as a way of keeping up with the Joneses; remember, everyone’s financial position is different.
- “Is it wise to put this on a credit card?”
It’s easy – and tempting – to put big purchases on plastic; but that’s led to the average UK household having £6,991 in credit debt* as of September 2016, explains The Money Charity.
Credit cards offer more protection than if you pay with a debit card, and can be useful for spreading payments of essential purchases over time. But it’s important not get sucked in by the ‘buy now pay later’ appeal of credit cards, as you could run into debt and start to rack up interest. The trick? Only use your card for essential needs, not wants, bearing in mind that the interest on credit cards is high. Try to pay off the balance at the end of each month; if you can’t, make sure you’re aware of how much your purchase will cost over time. If you can’t afford it, don’t buy it!
It’s not all about splurging…
Heat-of-the-moment decisions don’t just relate to spending cash, but also to decisions you make that may affect your financial standing.
Say, for example, you’ve resolved to find a new job in the New Year. Acting in the heat of the moment may see you handing in your notice without much thought for where that leaves you – and your family – financially.
So, whenever you’re faced with a decision that affects you financially, don’t rush into a decision; take your time to think it through thoroughly. It’ll help to prevent reckless spending, helping 2017 to become a happy and prosperous year for you.
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