When it comes to money, there are two different types of people – savers and spenders. I used to firmly be in the latter camp, but as my twenties disappeared and the grown up decade of my thirties became a reality, I decided it was time to get a grip on my never-ending spending.
I’ll start by telling you how, and why, I became as frugal as I am now, in a good old fairy tale fashion. Once upon a time there lived a girl called Victoria, who, when she turned 18, decided to apply for a credit card. Not understanding what APR was, or the point of a credit card, she went out shopping that day and blew £250 on clothes. She was then offered a store card and said yes, again blowing it all in two shopping trips. She then decided to get a loan, for no reason I might like to add, and again, blew it all on nights out, a holiday and more clothes. Time went on and silly 18 year old Victoria struggled to pay back her minimum monthly payments so, without knowing what bad credit was, ignored the bills that came through the door, buried her head in the sand and tried to forget they were there. Big mistake.
There isn’t a happy ending to this fairy tale unfortunately, because what I didn’t know at 18 was, if I didn’t manage my money right, it would affect me for the rest of my twenties. Defaults happen when you don’t make repayments, and once you have these on your account, they don’t disappear for six years. That means for those six years, and sometimes even after then, banks and any form of money lending facility simply won’t touch you. My friends were getting nice cars on finance, buying houses etc – I couldn’t even get an overdraft. So today I wanted to give you some of my tips on how to manage your money, in the vain hope that you won’t follow in my footsteps. Trust me, I’m speaking from experience when I say these to you.
Work Out a Budget
This is something I’m only just managing to do now at 30 years old – working out a budget and sticking to it. I use an Excel spreadsheet, write down what my incoming’s are for that month and then every single outgoing I know I have. And I mean every thing. I put money aside for food on one card, and some more money aside for petrol on my other card and I don’t go over what I have allocated for each week. I then keep all my money for bills in the bank and set aside my spending money for the month. When each bill is paid, I delete it from my spreadsheet and if I’m paying money off something, like a credit card, or my sofa which I got on finance, then I’ll write down how much is left. Writing things down is a great way of realising how much you actually spend each month. It used to be a case of me drawing £10 out of the bank, spending £2 on a sandwich and the change flittering away on magazines, drinks etc – all crap I basically didn’t need. Now I bring my lunch into work, eat what I have in the cupboards and think about the price before I pick up anything beauty/hair/clothes wise.
Let’s be honest, at 18 who really knows what APR (annual percentage rate) means? I bet most people in their twenties have little idea. When you get offered loans, credit cards and overdrafts at 18, it seems like free money. I firmly believe money management should be taught in school. Young people should be taught about what happens when you don’t pay bills and how it can affect you in later life. I was silly enough to basically see it as free money, and I didn’t realise about minimum payments, never mind defaults. The worse thing you can do is get drawn into a credit card or a loan without realising what the interest payment is. I knew the bank wouldn’t allow me to take out a loan, so if I needed to borrow a lump sum, guarantor loans would be the only way to go. Because my credit was so bad, I could only get a credit card with a super high APR and a low credit allowance. And the only reason I wanted another credit card after all these years was the build my credit back up. So now I pay for my petrol on my card, then as soon as my statement comes I wipe it off again. That way Mr Banker can see I’m finally a trustworthy payer.
Pensions, savings, grown up things
It was only when I was in my late twenties I decided to look into a pension. I sat down and worked out what I could afford a month, and when the work place pension scheme came along (where your employer matches the amount you put in each month), I knew it was time to bite the bullet and start one. I’m still not overly clued up where my pension money is going (there are so many options, it can feel overwhelming so in all honesty, I let me employer deal with it), but I know when I retire I’ll hopefully have a decent amount of money to live on. Starting a savings account is not only a consideration, I’d say it’s a necessity. Although the economy is getting back on its feet, you really don’t know what’s around the corner and if you were to be made redundant tomorrow, would you have enough money to pay the mortgage/rent etc until you found another job? I know I don’t right now, which is why I’ve been so frugal recently with my money so I know at the end of the month I’ll have a little pot of cash which I can put in ISA to start building a rainy day fund. When you drive an old car like I do, having a pot of spare money really is essential.
I hope some of this has been of some help. I know it’s not a glamorous subject to talk about but I wanted to be honest with you about my mistakes so you don’t make the same. If there’s one final piece of advice I can give you, it would be to start now. Not tomorrow, or next payday. Sit down today, open those bills and work out what’s coming in and what’s going out. It will clear your head and feel like a weight has been lifted, believe me.