Change your habits: managing your money


Nowadays the majority of people go through life not knowing how to make money, how to spend it wisely or even how turn it into something of greater value. Personal finance is a sensitive subject for most of us because it is so closely linked with our self-worth, pride and self-image, and additionally, each of us has different needs, desires and expectations for our finances and for ourselves. Given that money is everywhere and it is how we trade and exchange our time, possessions and skills, it’s essential that we don’t fear or despise money, but use it to our advantage in order to create the best life for ourselves, giving us the necessary resources to pursue our most valuable objectives. On the flip side, money mismanagement can easily bring about endless stress and anxiety, causing a breakdown in relationships, depression and even bankruptcy.

One of my goals for this year is to become financially independent which involves studying how to effectively generate money, understanding the best ways to both manage and maximise my income and, above all, getting rid of any financial worries. I’ve discovered some really useful tips that I’ve begun to implement in my life in order to realise this goal and I know I’m on the right track. Who knows, maybe you might find some of them relevant to your life and your goals. Voilà:


  1. Identify your priorities

If you don’t know what you want you surely will never know how to get there. Being clear about your priorities allows you to decide what exactly is important to you, in terms of spending, and it gives you a specific direction in which to start. For example, you might need to save some money for your pension or a trip abroad. It may be the case that you need to pay off some debt or save for a deposit for a flat. Whatever the situation may be, as soon as you decide what you want to have, you take the first step towards reaching it.


  1. Pay yourself first.

All the motivational speakers and financial gurus that I follow stress this over and over again. The reasoning behind this is most people pay their bills (their essentials) as soon as they receive their wages. Next they satisfy wants (non-essentials) by purchasing new clothes, dinning out, collecting DVDs, etc. Once bills and wants are dealt with, the money that is left over is put towards savings. If this is the case for you, the amount you can save each month is entirely dependent on the cost of your essentials and non-essentials, and can even amount to nothing if your bills and wants are particularly high. Consequently, you are not paying yourself first and you will struggle to be in a better financial situation month after month.

What I suggest is that as soon as you receive a payment from your work, whether it is £100 for babysitting or £2000 for IT consultancy, you have to set aside at least 10% for yourself. That would mean £10 for the babysitter and £200 for the IT consultant. A percentage is much better than a certain amount because it means your savings can grow proportionately to any increase in income. For example, let’s say the babysitter is paid £200 for the following month. They would still put 10% of their money aside, saving a total of £20. No matter what your current financial situation, paying yourself first gets you into the habit of managing your money and learning how to reward yourself for your efforts, both now and in the future. After a year of using this technique the babysitter can expect to save £120 and the IT consultant saves £2400, money that can be used to pamper yourself, be put towards a new car or be invested the following year – it is entirely up to you. Depending on your financial situation and your priorities, you can pay yourself first with 10%, 20%, 30% or more. If you are in a more difficult position, you can start by putting 1% of your monthly income aside and working from there. It’s likely that during the first month you will feel the adjustment as you reduce your spending here and there. However, by the 2nd or 3rd  month you won’t notice the difference because new spending habits are being formed and implemented in your life. Regardless of your income, you will undeniably be in a better financial situation at the end of the year if you take on this habit and commit to paying yourself first. To make this step extremely effortless, you can create a standing order so that at least 10% of your wages are automatically transferred to your savings account each month. Once you’ve done that the next set is to sit back, relax and watch your money grow!


  1. Create a monthly budget

Oftentimes we get to the end of the month and realise we have no idea where our wages have gone, although we thought we were watching our spending quite diligently. Creating a budget at the start of the month is a great way to allocate your money and hold yourself accountable for your spending. An easy way to create your budget is by splitting your income into the categories that are important to you (e.g. savings, bills, travel, entertainment etc.) and giving each category a specific percentage. Below is a simple example for a babysitter earning £100 a month.


Savings 10% £10
Clothes 40% £40
DVDs 40% £40
Sweets 10% £10
Total Income £100

The table above clearly shows the total income and how much money can be spent on the different categories. If the babysitter wanted to spend a little more money on DVDs this month, say £50 instead of £40, they would have to reduce one of their other categories by £10 in order to balance everything out. For example, they might decide to skip buying sweets until the next month because the allowance for sweets is exactly £10. On the other hand, if the babysitter doesn’t want to use any of their £40 allowance on clothes this month, they can add it to their monthly savings instead, bringing it to a total of £50. Alternatively, they may add the money saved to the following month’s allowance for clothing, creating a total allowance of £80!

To help you keep the categories organised, you can put each allowance into separate envelopes meaning you can accurately see how much you have left to spend and notice when you are running low. When you have no more money in an envelope it means you have no more money to spend on that category until the next month so always pay close attention!

Budgeting is very useful because it makes you aware of what you have and exactly where it is going. As you continue to implement this tool, you’ll develop your decision-making skills and become a lot more self-disciplined about spending – nothing to lose and much to gain!


  1. Higher interest accounts

This is a suggestion especially worth  noting as it helps to maximise your money without you having to do much. Sounds ideal to me! It’s important to research thoroughly to find an account that suits your lifestyle and your needs. And don’t forget to read the small print when agreeing to anything. Click the link to find out more information: A guide to savings accounts


  1. Ditch the car whenever possible.

Cars continue to lose value over time (even on the day you purchase it) so buying one is definitely not a wise investment decision. Nevertheless, for some people there is no alternative. But for those of you who have access to good public transportation, USE IT! This can dramatically cut your expenses and save you hundreds of £££ each year. An even better alternative to driving a car is cycling. Cycling is incredibly healthy and it’s pretty easy to find a good used bike online (Ebay, Depop, etc.) if you don’t already own one. Maintenance costs are super low, especially in comparison to a car, as you can find easy online tutorials to learn how to fix and maintain your bike for free. Over the last two months, by opting to commute around London by bike, I have saved over £100 – the equivalent of a return ticket to Turkey. Yes please!


  1. Prepare meals at home.

Though eating at restaurants and grabbing hot drinks on the go is really pleasurable and satisfying, these expenses can quickly drain your finances leaving you in a state of shock whenever you check your bank balance. (My heart hurts just thinking about it!) Preparing your own meals is a cost-effective and healthy alternative to eating out because you know exactly what is going in your food and you can also cook in bulk and freeze some meals for later on in the week. Plus you can quickly transform last night’s leftovers into tomorrow’s lunch without any hassle, instantly saving you lots of time and money. Because it’s the small things that really make the difference, making your morning cuppa at home instead of buying it from Starbucks, which costs £2.10 per cup, can save you £546 every year – that’s over £42 each month. Just think of what you can do with all that money! (Weekend away in Turkey anyone..?)

Now I’m not saying that you should never spend a penny on dining out; I actually think that going to restaurants with friends or family is a healthy part of a good social life. What I’m proposing is that you become conscious of your expensive food habits and identify simple adjustments that you can make to your daily routine that are easier on the wallet and in line with your priorities. In the long run it truly is the small things that make the biggest difference!


So whether you decide to take on one of these tips or all of them, you will start to become aware of your money habits and, most importantly, begin to take control over your finances and your future. Who better to manage your life than you, right? And, as I said before, money mismanagement can easily lead to immense stress, failed relationships or you being broke, so make sure that you plan ahead carefully by looking after your money today and making wiser decisions that bring you closer to your financial goals.

Hope this helps – best of luck!