You might remember that back in August Dave and I became debt free. Our journey to getting debt free started years before and when I finally sat down to sort our finances out I made a lot of changes to how we dealt with our money and how our money was organised. I’m hoping this blog post may help someone else organise their finances better, save better or realise they have more money than they think they have.
Dave and I had always had separate bank accounts and a joint bank account for bills that money went into each month. When we started sorting our finances out we changed this so that our wages went into one joint account and our bills came out of another. When I say bills I mean any direct debits/standing orders for everything each month. This doesn’t include food and petrol. We set up a standing order on pay day to go across to the bills account so that whatever day of the month there would be enough money in the bills account to pay everything – Priority 1 – the mortgage had to always be paid.
After our bills money had transferred over we were left with an amount in our joint account. This was to pay for food, petrol, day to day expenses, debt repayments, birthdays, Christmas, car MOT, car tax, insurance (as we always pay annually) and savings. This was also where we would need to pay for any household emergencies that may arise – broken car, broken washing machine, leaky roof, that kind of thing.
The next priority was debt repayments. Our loan repayment came from the bills account but any credit card bills, catalogue accounts – Next directory etc, had to be paid so these became a priority. I would pay off any small catalogue bill in full each money and if we had a large amount owing on a credit card I would make sure I paid off as much as I thought we could afford. These payments were made on pay day – before we spent any money.
I then realised we had a lot of ‘large’ expenses through the year that we would usually put on credit cards – Christmas and our two Car Insurance policies mainly. I set up separate savings accounts and a standing order into each. We have since saved £75 a month for Christmas and Birthdays through the year – more than enough, and £100 a month that covers our car insurance, tax and MOT on our two cars. These payments come out on pay day too. This also means that if I buy presents for Christmas through the year I have the money there to pay for them and we have the money to pay for car related things as and when we need it. At the end of the year, if we have money left in these accounts it goes over into our every day savings account and is a lovely bonus!
We also save money each month for the children and put £50 a month into our ‘Florida’ account – just under 8 years and we’ll be going to Disney World!! Cannot wait. These payments also come out on pay day.
After all of these payments come out we are left with a lot less in our ‘normal’ day to day account BUT everything is paid. We then know that anything that is left is for food, petrol, day to day spending and savings. Over the last few years I have worked out that Dave and I can live easily on £500 a month for food, petrol and day to day spends. If I focus a lot on it then I can get by with £300-£400 a month. So after everything else is paid, I leave £500 in our normal account and transfer everything else into savings.
That £500 is then our money for the month. Everything else is paid, we have put money aside for everything else that we need to pay out for at some point and we usually have money put into savings. But, we cannot then spend more than the £500 – as we won’t then have enough money, will go overdrawn, pay interest and/or charges and will have even less money the following month.
Things I’ve learnt from the last few years from my own experiences –
- If you pay insurance policies annually and don’t save for them they usually go on credit cards.
- If you don’t save for Christmas you either don’t have enough money to pay for it, can’t get the things you would like to or you get into debt.
- If you don’t pay off catalogues and other ‘small’ credit accounts in full each month the interest is ridiculous.
- If you forget to pay a credit agreement like a credit card or catalogue you don’t only get a huge charge and interest but it also effects your credit rating. Set up minimum payment direct debits to pay all debts so that if you forget you won’t get penalised BUT if you always pay the minimum payment on a credit card debt it will take you forever to pay it back.
- If you don’t allocate money to savings as soon as you are paid then you will spend the money and won’t save.
- Internet banking makes having multiple accounts incredibly easy as well as setting up standing orders, transferring money and making payments for bills.
Our circumstances are changing as I’m obviously on maternity leave – we won’t have money to just save, but our Christmas, Car, Florida and Children’s savings will continue. It also means I won’t be able to just buy something from a catalogue, buy new clothes or go out for a meal. But our bills will be paid, we’ll have a basic amount for food and petrol and the Children will always have a lovely Christmas and Birthdays. I can’t really ask for much more than that!