Managing your money is hard, especially when direct debits come out at different times in the month and all you need to do is swipe your card to pay for things! I was shocking at budgeting and I had to learn the hard way unfortunately as I was constantly using my overdraft as a buffer. Eventually I exhausted my overdraft and as I was a student and earning a low income; I could not break the circle, my account was constantly in a deficit.
Getting a grip of my own finances
I decided to set a goal of being debt free once leaving university and I realised that I needed to control my spending and see where my money was going before I could start thinking about saving. I started working in the accounts department at a small business and they used a cash flow spreadsheet which inspired me to make my own budgeting tool which allowed me to anticipate correctly my balance at any one time.
Cash flow fun…
The cash flow spreadsheet is available here to download. Cashflow
It dawned on me that I had to make sure I knew where every pound went, scrap that, where every penny went, in order to keep on top of my finances. No more drawing out £20 from the cash machine, buying a few things from the shop and not knowing where the change went. No more paying on my debit card with my fingers crossed to make sure the payment did not fail. I needed a tool that would help me plan and predict so there were no nasty surprises through the month, no scrimping, scraping or borrowing.
A screen shot of the cash flow
To begin the cash flow you need it to mirror your current / savings account. Therefore you should put your balances and information in the first white row. This is your ‘historical’ figures, where you start your cash flow from. The red figure is your starting balance.
If you have a look at the cash flow you will see the yellow section. This is the section that you need to fill in. The first part concerns your incomings. This is your salary or income from other means such as investments and pensions. The outgoing section is for all your daily expenses. I have added some columns such as mortgage, bills and holiday but you can personalise it and add more items or take them away. I compiled a cash flow for a friend who had a horse which contributed considerably to her outgoings so she needed a column for these figures. Once you have populated all your direct debits and outgoing payments in the correct column on the specified date, you will be able to see your current account balance change in the blue column.
Save for raining day
At any point during the month you should be able to see your balance and how much you have left to spend. It is really important that you have money left over as it is this money that you can save or tuck away for those “what if” scenarios; when the boiler breaks, the tv conks out, a friend’s wedding… the list goes on, it’s life! If you don’t have much left at the end of the month, or your outgoings are more than your incoming, do not despair.
Once you have started to populate some of the columns, you will start to be able to identify where you can make savings. How much are you paying for your mobile phone? Are you paying for insurances you don’t need? When I did a review of my finances on the cash flow I noticed that I was paying for mobile phone insurance at £14.00 per month and an accidental damage insurance for my laptop at £5. On reading the small print on my home insurance both items were already covered so I cancelled these and easily saved £19.
If you manage to reduce your outgoings by £60 then you will have saved £720 in a year. Add this to your savings and add your acquired interest, you will soon be on your way to forming a nice little savings pot. Remember, it is much better to pay off debts before saving, so start by paying off more of your credit card bill or increasing loan repayments as this will be more beneficial in the long run. The savings section is useful as you can see your balance grow and any money you have left in your current account at the end of the month you can move across. If you need to borrow from your savings for a holiday from example you can make deductions.
A good cashflow can help reduce debt and increase savings but it can also have a positive impact on your credit score as you will be less likely to go overdrawn and miss payments. All your outgoings are taken into account in a mortgage application so having a ready cash flow can work in your favour as you can evidence whether you can afford the mortgage repayments or not and you look super organised!