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Life by the numbers Part 1-Money

The concept of money as a bartering system has been with us longer than written history can tell and being quite honest most of us feel like we could use more of it. The good news is while the majority of us will not get rich quickly we can employ some simple techniques to manipulate our money to work for us in the short term and long term.

Mindset

There are two aspects to our mindset I would like to make clear before embarking on this journey.

Initially what I propose may feel impossible, too hard or not worth doing. Instead of focusing on wealth and riches I want you to clear your mind and approach this with one thought “I want to be 1p better off”. If you can motivate or discipline yourself to be 1p better off then you will find opportunities to multiply this greatly.

Secondly, all of us get a kick from buying things (experiences, products, food whatever tickles you). It is addictive, inevitable and it makes us feel good. Some of the things are even what makes life worth living. Following these guidelines help to shift our addiction from spending into saving. If you can put yourself into a position of power and control over your money then you can enjoy the satisfaction of watching it grow and gain the peace of mind that comes with it.

Acknowledging both of these aspects is key to making use of the tools this article provides and is the first commitment you make to yourself on this journey.

Savings

One size does not fit all when it comes to savings and you are not married to one single approach. Evolving your approach as savings grow will work very effectively and help you to maximise your profit.

For each of these techniques I recommend the following:

1. Set up at least one savings account or savings pot to hold the funds away from your current account. Ideally an interest paying account with no fixed term (for now).
2. Set a goal to work towards. If you are just starting out this should be three or six months expenses (not salary) in reserve. Once you have this reserve you can think about a holiday, car or anything which appeals to you.

Incremental savings — The least invasive form of saving. Set up a savings account or pot which you can see but not remove money from easily (if it pays interest then even better).

On day 1 add 1p to the savings account, on day 2 add 2p and so on. Each day contribute 1p more than you did the previous day. This may not seem like much but ask yourself two things:

1. How painful is it to save literally pennies per day? Not very.
2. Would you have been able to consistently save for a whole year any other way? Perhaps but perhaps not, life happens.

If you bank with companies such as Monzo the good news is this process can be automated with IFTTT and is known as the “1p savings challenge”

On your last day of the year you will contribute £3.65 and be sitting on a grand total of £667.95 (approximately).

Pay yourself first — Slightly more invasive but more suited to those who like regularity and slightly larger deposit amounts.

Take 10% of your net pay and put it in a savings account. That’s it. Pay more if you can but no less than 10%. The remaining 90% is used to cover all other expenditures. A strange thing happens here, the ability to spend naturally tempts us to spend and we love it. If we reduce the ability to spend we find ways to reduce our expenditure.

Consider this, 10% of each monthly wage packet for a year is more than one entire months salary saved.

I also recommend setting up a spreadsheet which tracks contributions, totals and projected goal over the course of at least a year. This helps maintain the financial discipline required.

Zero budget saving — This is more for those who wish to maximise their money in the shortest timescale. Split your monthly salary into three categories:

1. What you need — food, fuel, housing, transport, debts
2. What is nice to have — broadband, Netflix, mobile phone
3. Spending money- takeout, fancy coffee, occasional treats

What ever is left you take aside and put into savings which brings your available budget down to £0. By the time your next wage packet arrives you should have no available cash (but a nice fat deposit into a savings account).

This technique allows you to grow savings as fast as possible but also has a hidden bonus. Just because you have spending money, doesn’t mean you need to spend it. Anything not spent can be saved instead!

The sky is the limit on this one and recommended for speed. The amount saved is entirely dependent on how much you can squeeze from your expenditures.

Budgeting

Spreadsheets have a bad reputation but there are those of us out there who quite enjoy them. When you bring together your budget, savings and debt into a single spreadsheet and maintain it then you are a master of your money.

Everyone has their own sheet the way they like it (and I am no exception!). Broadly speaking column A is always identifiers for each value (salary, direct debits etc). Each following column is a given month of the year. I prefer to project my spreadsheet 24 months into the future. While none of us knows what will happen it’s a lot easier to improvise from a plan than to concoct a plan in a rush.

The rows are where the fun begins. As discussed in the previous section I order my rows by categories:

• Net Income (wages, salary, pension, benefits)
• Bills (every single bill, no matter how small is itemised down to the penny)
• Additional (birthdays, christmas, non-recurring expenses like insurance etc)
• Investment (savings, premium bonds etc. Anything which is “moving” money from your monthly budget but is not spending”)
• Summary (total in, total out, free cash, savings total, debt total, float months)

I feel like that last one may require some explanation. Float months (as I call it) is basically how many months your current spending can be maintained without any income (ie. from savings). This is important because if you set yourself a savings target of 3/6 months expenses then you need to know if you are meeting or falling shy of the target. This in turn helps to shape your mindset and do month by month course corrections to your goal. If you find you aren’t where you want to be, don’t panic, it happens to us all. Adjust your budget, lower your goal or preferably increase your timescale for achieving it.

Now that I forced you to read all that, please feel free to download an example google sheet and have a play around!

In summary….

It’s that simple. Know what you have, know your commitments then set your sights on a goal and go. Each pay packet which arrives becomes a cause for celebration and time to update your progress. I hope this helps guide you through the first 12 months of your journey but it doesn’t need to end there and can continue as long as you like. The important thing is loving your savings, feeling proud of what you achieved no matter how big or small and becoming a master of your financial world. Safe journey!

Up next…

Join me again for part 2 of Life by the numbers where we talk about a different kind of budget on something even more precious than money, our time.