How to gain financial independence through budgeting is one way to start to change our situation for the better.
For many of us, it feels like we have hit the ‘pause’ button. It’s now a great idea to look at our life and situation before everything was put on pause and think to ourselves…
“When I press play again, was I really happy with what I was doing before I pressed pause?”
In 2019 I took out a large business loan to build my new travel business. Early this year I heard from friends in China about coronavirus and how it was affecting not just the travel industry, but creating huge social and economic issues.
Worried, I feared the loss of the last year’s work and money being wasted. That fear came true.
I had already started to look at other ways to make money, work for other people and look at how to manage my money at the beginning of this year. My idea along with the income I was hoping it would create was now impossible.
Like many of you, I am now also furloughed with no idea when I will be able to start work again. Being in debt with no idea how I will pay it back now is something that can be difficult to deal with.
It took me just over eight years to get out of £20,000 debt – and then under a year to save £15,000 to go on an Adventure back in 2017. I know that while I may be in debt now, I have all the tools to change this myself.
I’ve decided to share and review some of my budgeting practices. With many of us being in lockdown this is an opportunity for us all to think about how we are spending our time and money.
I understand not everyone reading this post will have had the same experiences as me, and that’s ok! However, I’m sure there will be some actionable advice here that you can use on your journey to financial independence.
Previously in May 2018 I shared how much money I have, spend and need. The situation has changed enormously since I wrote that. I closed one business, moved house and started working in a completely different way. I’ll be sharing more on my current financial situation in the future, and would be keen to hear in the comments what you are interested in knowing about.
Whatever your situation I would love you to read through my ideas and ways to stick to a budget, and let me know your thoughts in the comments below.
As always I want to remind you I have no financial qualifications, these are simply the tools that I use. For lots of great advice and support, I always look to the UK Based Money Saving Expert website for help.
1. Write down all your Monthly Expenses
After finding a pen and paper, begin by writing down all your bank, credit card and savings accounts. As well as writing current balances, include minimum payments and interest rates for any credit cards – this will help determine which ones are most important to pay off first.
I always recommend paying off the highest interest account first and transferring balances where possible.
This is also a good way to see if there are any areas in which you can reduce your outgoings. Are there subscription services that you can cancel or key areas you can see that you spend a lot of money in each month?
Since lockdown, I have cancelled my Amazon subscriptions to Audible and Kindle unlimited. You can read why I have stopped using Amazon and shop elsewhere here.
I have also paid off some of my overdraft and managed to get a three-month break on my business loan.
2. Set Up Direct Debits
I always recommend setting up direct debits for regular outgoings like council tax and utilities. Many suppliers offer a discounted rate for this – I am with Octopus Energy and by having paperless bills and a direct debit I saved £200 a year. You can also set up direct debits to all come out a few days after payday, to make sure your bills are covered before you spend all your money for the month!
I have direct debits set up for all my household bills and use Evernote every Monday to keep track of my monthly budgets to see what has come out of my bank accounts.
Octopus Energy will split £100 with every friend that signs up with this link. The reason I use them as my energy supplier is 100% green electricity — and they are no more expensive than their competitors’ non‐green tariffs. You can also carbon offset the gas you use if you want to minimise your environmental impact even further.
3. Create a Second Bank Account
Currently, I have a business account with Natwest and personal account with Barclays. I also have an account with Monzo, a new internet bank. I tend to transfer all my ‘spending’ money onto my Monzo card, which allows me to stick to a budget and make sure I don’t get overdrawn.
Monzo has three cool functions that I love to use. One is that I can use it easily abroad and it will tell me what I have spent in the UK and Local Currency easily. I used it easily in every country I visited in my round the world trip last year. You can also allocate budgets to different spending types (food/shopping/entertainment) and it will automatically assign transactions to this, and let you know if you may be going over budget. I can top it up easily with my debit card, and if I lose it (or think I have) I can freeze my card until I find it again.
After recently subscribing to Ethical Consumer I have decided to try and move my accounts from Barclays and Natwest to Monzo and Starling. The reason for moving to Starling is because I can make higher cash deposits then I can with Monzo. Many of the big banks have extensive investment in fossil fuels and climate change issues.
4. Create a Plan
Deciding to stick to a budget is easy, but so is giving yourself unrealistic goals. If you try and go from saving £0 to £500 a month, you will more then likely fail. Creating manageable goals may take longer but are more likely to last.
Perhaps you are overwhelmed with the changes you could be making, and end up giving up completely.
Instead, after writing down your monthly expenses aim to tackle just one change a month. By the end of the year, you will have made 12 new habits which have felt much easier to keep as you have allowed yourself time to adjust.
Tackling your utility bills this month, your subscriptions next, and tackle your food bills last is a good place to start.
Or if you have a goal amount you need to save, look at what’s achievable within the time frame you have. Do not be afraid to adjust this plan monthly if your circumstances change. Maybe taking on another job may increase your income, but can be bad for your mental health and leads to exhaustion.
My circumstances changed on a monthly basis as a self-employed person when I was paying off my debt, so I had to be mindful of that. Often I turned down work when I needed the money simply because I would have been too exhausted to look after myself mentally. When I did try and do ‘too much’ it often took me longer to recover and had a negative impact on my overall health.
5. Work with Cash
Now it is so easy to spend money with just the tap of a card, another way I have found to be more conscious of my spending is only working in cash. The physical action of handing over hard-earned cash will make you more aware of how much you are spending.
If you want to be super strict, leave your cards at home so you can’t be tempted at all to overspend!
Currently, many places in the UK are not taking cash, so an alternative to this makes an effort to write down in the notes section on your phone or in a notebook every time you make a purchase. Try and include ‘no-spend’ days into your week, or a weekly spending cap.
6. Plan Your Month
I plan out at the beginning of each month my predicted expenses. If I have specific events coming up, for example, a trip away, I write down what I think I will spend. If I have plans with friends I assign some of my budgets to that or think in advance how I can make my plans fit my budget.
At the beginning of each month, I guess what I will spend, and as this changes weekly, I change my plans.
Often I will create or amend plans to fit my budget. I will invite people over for dinner as it is cheaper than meeting in the pub, or cycle into town to save on bus fares. Making these changes in advance is another way I feel in control of my budget.
7. Plan Your Week
At the beginning of each week, check your plan and see if there are further ways you can save your money or increase your income.
If you really want to meet a friend for drinks, why not seek out any local deals or happy hours. When a sudden bill or hidden cost comes in, how can you change your spending habit in the week ahead to help you with this?
If you need to ring a service provider to talk about a bill, schedule in the time to do this and put it in your calendar. Take the time to meal plan and book a home delivery. Batch cook your meals.
Check the kitchen cupboards, fridge and freezer for what you have available. What needs to be used up?
If you want to buy a new book or rent a film online could you do something different? Perhaps see if a friend has some books you can borrow, visit the local library or listen to a free podcast. Why not check out my Top 10 Podcasts here and choose something new.
Taking responsibility at the beginning of each week will help you feel keeping control of your budget is both manageable and possible.
8. Adjust Accordingly
Sticking to a budget can be hard work, but it doesn’t have to be. I always remind myself of the phrase ‘Adjust Accordingly’ when I am worried about how I can stick to my budget. It’s not just about saving money or increasing your income. It’s about changing your habits and learning to enjoy things in a different way.
Here are some examples of common problems and how to avoid them.
- I have overspent on my food shopping.
- Adjust Accordingly -> Plan out a weekly meal plan. Freeze meals for next week where possible. Reduce your food budget for the following week. Check whats available in the fridge. Reduce the amount of meat that you eat and alcohol you buy. Try some new budget recipes. Buy supermarket own brand.
- I have overspent on my going out budget.
- Adjust Accordingly -> Cancel or update social plans for the following week to include lower-cost activities like walking or dinner at home. Use money from my other changing budgets to compensate, like reducing next weeks food bill or transport costs.
- My rent is too high
- Adjust Accordingly -> Can I move somewhere cheaper. Can I get a roommate? Can I reduce my expenses elsewhere?
- I can’t stick to my budget and I feel alone.
- Adjust Accordingly -> Am I trying to do too much? Do I need to seek financial support – like the Citizens Advice Bureau or talking to people in online forums like UK Based Money Saving Expert website for help?
- I’m exhausted.
- Adjust Accordingly -> Am I working too hard? Can I reduce my workload or change my hours? Or work less and change my budget. Or cancel social plans for more self-care and sleep? How to gain financial independence through budgeting should be something that improves your life, not detract from it.
9. Search out free things to do.
Often when living on a budget it’s easy to feel you are missing out an all the fun stuff. Living in a big city like Manchester there are tons of free things to do every week. Most big cities will have companies that send out weekly whats on newsletters. Here we have Manchester Wire, Manchester’s Finest. I Love Manchester and Manchester Confidential. All of whom can keep you up to date on what’s happening in your City.
Some of my favourite free things are included in my 20 Quick and Easy things to do to help you feel better.
- Make a packed lunch and go for a walk with a hot flask of tea and a free book from the Library.
- Go Geocaching! There are over 3 million geocaches hidden in 190 countries. The basic app is free (premium is £25 a year). Its basically a treasure hunt around the world.
- Free Walking tour of your City – find out the History of your town
- Go to the library and pick up some new books to read, or rent a DVD (With the library’s closed why don’t you try a book swap with friends?)
- Start a successful blog or start writing a book!
- Learn to make a new budget-friendly recipe
- Listen to a new podcast.
10. Create New Habits
Sticking to a budget is hard, but made harder when you don’t make an effort to create new ways and habits of how you live your life.
Remember, just because you have always done something a certain way, doesn’t mean you always have to do it that way.
Think of it like this. When the internet came out, do you think every business just thought ‘well we’ve never used it so let’s just keep sending faxes’.
No. They found an easier, better and more successful way to communicate and used it to improve their businesses.
You can decide to start creating new habits so that you can improve your life.
How to gain financial independence through budgeting will become second nature to you. It is second nature for me to cycle everywhere, carry a packed lunch or snacks and do monthly budget reviews. But it wasn’t always like that. I used to buy new clothes on a weekly basis, but now I have less than 20 items and only replace them when they have been worn out. Slowly changing my habits over the period of a decade has meant many things are just ‘second nature’ now.
You are not debt, you just have debt.
11. Monthly Reviews
Spending one or two hours a month looking at how you spend and save your money will be highly beneficial to felling more confident in being responsible for your money. If you have had a few weeks in which you were unable to stick to budget ask yourself why that may be?
Are you constantly overspending on the same thing? Is there a way in which you can change that? If you are unable to hit your savings or income goals you may have set them too high.
Moving in the right direction often can take longer then we think. It took me eight years to get out of debt. There were often months I struggled to pay my bills, had to borrow money or fell behind on my loan repayments.
But I knew that I was moving in the right direction and I could learn from my mistakes.
So when I struggled, I asked for help. I researched options and I revised my plan monthly.
How to gain financial independence through budgeting
The most important reason to be aware of your financial situation is that it allows you to take back control of your time and your money.
Often the worry of sticking to a budget, clearing debt or managing our money for the future can be overwhelming.
The hours of the day are finite and intrinsically valuable, so to be successful is all about managing your own time.
Once we are able to take control of how we spend our money, it allows us more time to do the things that we love, and create positive habits that will only improve our happiness.
If we all treated our minutes a little more like pounds, we would understand better how by taking control of our budget actually means claiming back our time.
What are your thoughts? How do you stick to a budget?
Also published on Medium.