You may be wondering why I’ve decided to write a post about saving money on a career management blog. As you know, as avid doers we have huge plans, we dream big and we’re determined to get where we need to be, and most times we get so caught up in painting our future plans that we forget about small practicalities, like…money.
Now if I left you hanging on my last post where I talk about funding your own training when work can’t offer it to you, and you’ve assumed that I’ve assumed you have cash to burn then fret not – I have a follow up to help you. Thus, this post is born.
Big fat caveat – I am not a financial person. I am in no way a financial professional so, as I said in my previous post, if you need help with money, seek professional and/or legal advice.
So, with that cleared up, I can explain to you a method of saving money that I personally have been doing for the last 3 years. It doesn’t involve investing or finding out savings rates from 50+ banks and ISAs and gawd-only knows what.
But it is very easy to stick to, and even easier to implement. It’s also a method I’ve been sharing with friends and colleagues in passing who have gone on to do it themselves.
Just by way of background, I’ll share with you how I decided to try this ever-increasing suspenseful method. Just after my husband and I moved to the Peak District, I started a new HR job which was a handy 40 minute walk away (as a keen rambler, this was actually enjoyable). I had just discovered the world of HR and chose to take a significant pay cut in order to take this entry level role and as such I had to find a way to keep on top of the money. I’ve always been a bit frugal, thrifty, and OK – at times – ‘tight’, but I needed a way to make sure I never ran out of money before the end of the month. I also wanted to start an HR qualification course, so I also wanted to keep money aside to either pay for it in one go once I had the full amount, or so I could absolutely guarantee to have enough money each month to cover the instalments.
I needed a fool proof method of saving money AND never going overdrawn. My solution?
Now hopefully you may remember the national object of historical interest that is the ATM machine. It is my firm belief that, besides not having enough income to cover expenditure, debit cards are the reason why so many people overspend each month and don’t have enough to put away for saving. You have absolutely no way (that doesn’t require a lot of effort) of keeping track of your finances by using debit cards.
By taking cash out however, your budget is physically quantifiable. You have a running tally of how much money you have to spend.
So before I explain the cash element in more detail, there are some one-off calculations you need to do:
- Write down your total monthly income – this is your income, as well as partner’s, spouse’s, etc. where applicable
- Minus your monthly bills – all of your fixed bills but not food or entertainment if you eat out often or go to the cinema. Any bills that are variable but often, make an educated round up. The result is in essence your disposable income, everything left over once all your bills are paid for. I designate this figure as ‘A’ for illustrative purposes.
- Then decide how much money you spend on food, entertainment, etc. I will call this daily expenses for the month figure ‘B’.
- What is left over can then be split into two amounts:
‘C’ Your savings – for holidays or the particular thing you’re saving up for eg a course.
‘D’ Your buffer
For this method to work, you need to make sure that all unexpected bills and expenses are prepared for. Your buffer, ‘D’, will act as a safety net for these unexpected bills, and as unexpected bills are rare (and if they’re not, they should be included in your monthly bill figure), this buffer will only accumulate more and more each month if left untouched, to a point where you might not feel it necessary to carry on adding to it. It might even get to a point where it’s been untouched for so long, that you can syphon a portion of it towards your savings – just make sure you leave a sensible amount behind.
It is the figure B, the monthly day-to-day food expenses, that you will need to withdraw as cash. This is the way to keep an eye on the cash that you know you can spend without fear of going overdrawn.
I withdraw money on a weekly basis, so this monthly amount will need to be divided by four. I recommend doing the same, as withdrawing your money on a weekly basis means that if you are running out of cash towards the end of the week, you’ll soon be taking out the next week’s allotted cash. It also means if you have money left over by the time you’re withdrawing the next week’s money, you can treat yourself for a meal out, for example, without eating into the week’s budget.
Now using the letters above, the equation (gosh, we’re getting so mathematical and scientific) looks like:
A – B = (C+D), or
Disposable income minus food = buffer and savings.
Figures A and B make sure you get fed and your bills are paid. Whatever is leftover (C and D) no matter how big or small can work for your own needs and they don’t need to be equal.
Figures A, C and D are all automatic and processed each month with no effort on your part. It’s passive saving. That’s why you just need to calculate these figures once, and then it is only B, the cash amount, you need to actively withdraw once a week.
No more flippantly whipping your debit card out left, right and centre, and then struggling to save what little you have left at the end of the month.
If you would like to save a specific amount of money each month (‘D’) and be more aware of your food spending habits by lowering your preferred food budget, you can always move the equation around so that your saving becomes your priority, and the remaining amount is split between your buffer and cash for food. It would look like this:
A – D = (B+C), or
Disposable income minus savings = food and buffer.
Recording the figures
I do like a good spreadsheet, so I am biased, but using a spreadsheet to work this out and record your spend will really help you. Not only can you visualise it as a graph when you get your Excel jam on, but if you’re good with simple formulae to calculate figures A to D, you can change the figures around to try out different scenarios.
If you do use a spreadsheet, make sure to keep it. It really helps when fixed bills go up or down, likewise with your income, so these figures can be amended at any time. If the formulae are correct, your other figures will automatically update.
The most important thing to get from all of this though is take figure B out as cash, and provided your buffer is built upon to prepare for the odd unexpected bill, you’re less likely to go overdrawn. As I mentioned, you have a physical quantified budget, in cash, in your pocket. You cannot spend more cash than you physically have in your hand. But by sitting down and figuring this out (again, you only need to do this the one time), you work the calculations out in one sitting.
You can play the figures around until they meet your requirement. This will also ensure you have a monthly strategy of paying your bills, building on your buffer and saving money for a courses, training etc. without any effort whatsoever. You don’t need to actively remind yourself of sorting this out because it’s happening in the background automatically – you just need to take the weekly amount out and spend only the physical cash in your hand.
Do you want to carry on the conversation and leave a comment, or just say hi? Come on over to the Avid Doer social media accounts and have a chat there – you’re more likely to catch me in those neck of the woods! The links are at the top of the page. See you soon!