I'm not sure what's prompted it, but my twitter stream has recently been full of people asking for advice on how to sort out their household finances. People looking for tips on how to reduce their car insurance, contents insurance and utility bills and also how to keep track of what they're actually spending each month.
I can't pretend to be a complete expert here, but several years of balancing our household books (and a previous paid job running project budgets) means that I have picked up some ways of doing things that others seem to find useful so I'm happy to share them here.
How much are you spending and what is it going on
It may sound like a lot of homework, but before you can reduce your outgoings it helps to actually understand how much you are spending and what you're spending it on.
Some outgoings will be monthly (utility bills, mortgage or rent payments, childcare costs) whilst others may only be annual costs (insurance policies for instance) and it therefore helps if you can look back over a 12 month period to see what you're really spending. Get together all your bank statements, credit card bills and other bills and try to note down what your outgoings are on a month by month basis. If you have access to Excel or another spreadsheet application then this will make the job simpler. As a checklist you should expect to have the following items in your list:
- Mobile phone
- Council Tax
- TV licence
- Car insurance
- Car tax
- Buildings / Contents insurance
- Credit card bills
- Loan repayments
- Subscriptions / memberships
Also worth doing is working out how much you are spending each month in the supermarket. Break down your credit card bill or keep your receipts to see how much you are spending on food and on other things like toiletries, cleaning products and clothes. Keep track also of those small purchases that you make day to day - coffees and magazines can add up to a surprising amount over a month.
How to reduce what you're spending
Once you know what you're spending you can start to try to reduce things. Look at your last utility bills to see how much you are spending in terms of energy usage and shop around to see if you can get the same for less elsewhere. If you're not already paying by Direct Debit then it's worth seeing if you can as many utility companies give you a discount for doing so. Opting for online billing rather than paper bills also earns you a discount with some companies too.
The next time your annual insurance policies come up for renewal don't just automatically go back to the same company and accept your renewal quote. Phone them up and ask if that's the best price they can do. Also look at what other companies can offer you for identical cover. More money could be saved by looking into whether you actually need everything that your policy cover gives you. If possible increasing the excess on your policy is another way of reducing the cost of your policy. It does mean that you would have to pay more in the event of having to make a claim on your policy, but if you don't have to claim for five years you could make a saving even if you then have to make a claim and pay that higher excess.
Set yourself challenges for how much you want to save on your grocery shopping. Are there cheaper alternatives to things that you buy regularly. Do you end up putting food in the bin at the end of each week - if so stop buying it in the first place. Can you plan meals around what is on special offer in the supermarket that week? Try to buy toiletries in bulk whilst they are on special offer. Toothpaste, shower gel and nappies don't go off, so take advantage of three for two deals or similar when you see them rather than waiting until you run out.
Keep track of what you're spending
If you've set up a spreadsheet to track what you have been spending then just extend it going forwards to keep track of what you're spending now and this will help you to see where you're making savings. Look to balance the books at the end of each month as that will help ensure that you're keeping track of all your spending. Include your incomings in the same spreadsheet and you can see either how much extra you have left over each month, or how much more you need to cut your outgoings by to remain in the black.
Once you've reduced your outgoings the job's not over - planning ahead will hopefully help you keep on top of things. Think about those additional costs that come up from time to time. The need to replace your washing machine or fridge, urgent car repairs if it fails its MOT, the cat needing a trip to the vet and some money to go towards a family holiday. Look at how much these events might cost you if they happened and think about how often they might happen. If you think that once a year you have to pay £500 on average for car repairs then try to plan so that you have enough left over every month so to meet this annual bill - in otherwords £42 a month. That means that if that bill comes in you'll hopefully have enough set aside to be able to pay it without taking too much of a hit elsewhere.
What else can you do?
After reducing your outgoings then next obvious thing is to try to increase your incomings too and there's enough to say on that subject for a whole separate blog post!
I'm no financial expert, but if you found these hints and tips useful then please share this post. If there's anything that you think I've got wrong or missed out then please leave a comment and let me know!