If there’s one life skill that everyone needs to get a handle on in this world, it’s money management. Counting our piggy bank pennies was easy but adult finances are quite a bit more complicated! How we earn, spend, save and pay our way through life really is something that’s worth learning how to do well. In this blog post we’re providing some tips, advice and resources to set you on the right path to learn how to manage your money with confidence and ease.

BUDGETING

When you live independently, there are many items you need to pay for that you likely didn’t have to when you lived in the family home. The main costs are rent or mortgage payments for your accommodation, food and drink, and utility bills for things like electricity and heating. There are also transport costs, whether that’s your bus pass, the costs of running a car or your bicycle upkeep. Mobile phone bills, laptops, books for further study and of course clothes and shoes. How do you keep track of all of this? By having a clear budget and sticking to it!

The first step in budgeting is to list all the items you need to pay for, and then all the other items you anticipate. Do be honest and include everything, from the costs of your hobbies, subscriptions, toiletries, haircuts, charity donations, gifts, holidays, nights out - basically everything you can think of!

A helpful rule to follow is the 50:30:20 rule, where your budget is split into 50% Needs, 30% Wants and 20% Future as illustrated in this diagram. Look at the list of items you have made and allocate each one to either Needs, Wants or Future. If you’re like most of the population, you will find that there is more in the Wants category than 30% of your income! That’s exactly why a budget is so important, as the Needs and Future categories are very important so that you can afford to pay your bills, save for the future and pay off any debt you have already accrued.

It’s a good idea to take some time at this budget planning stage to:

be 100% realistic about how much money you have available
really think about what is important to you in terms of financial security and control
decide how you want to spend your money
decide how you want to plan for the future.

Next to each category, quantify the amount that you actually want to spend each month - then it will be easy to spot where you may be over-spending. Keep track of your budget by keeping a spreadsheet of what you’re spending, when you are spending and what you’re spending on. This Prince's Trust budget planner is a useful tool.

There are also lots of great budgeting apps if you prefer that method of tracking to a spreadsheet. For comprehensive money management, try Wally, Emma or Money Dashboard. There are also digital-only bank accounts that can help you with budgeting: have a look at Monzo or Starling Bank. Squirrel is useful for saving for a special occasion or holiday. For flatshares where rent, bills and food costs are shared, have a look at Splitwise.

You may be able to save some money in the Needs category by using price/contract comparison websites. These are really useful for items such as utilities bills and mobile phone contracts - for example, www.comparethemarket.com, www.moneysupermarket.com, www.uswitch.com and www.moneysavingexpert.com. It’s always worth shopping around too as some items are available cheaper, for example on Ebay or other second-hand websites.

CREDIT CARDS AND DEBT

Pre-2010, you actually had to sign for purchases made with debit and credit cards - for some people, that action of using a pen involved enough of a ‘pause’ to consider whether you actually wanted to make the purchase. Nowadays it’s a quick beep of a card reader or phone and it’s done. Online shopping is so easy and convenient too. It’s very, very easy to get into debt, either into overdraft on your debit account or credit card debt piling up. Sticking to your budget will help, as will considering the following factors:

if you’re thinking about having a credit card, consider whether you are inclined to make impulse purchases. If you are, perhaps having a credit card is not the best option for you right now.
whether you’re able to keep on top of what you’ve spent and pay it back every month.
interest - when you get into debt, you have to pay back interest as well as the money you’ve borrowed. Check and compare interest rates on your credit card and any overdraft facility you have.
how do you feel about having debt? Does it help you feel in control of your money?

Remember, even an interest-free overdraft is still using money that’s not yours, and will eventually need to be paid back. Credit facilities can be incredibly useful, and at the same time they need to be carefully managed.

SAVING FOR THE FUTURE

According to the 50:30:20, it’s important to allocate 20% of your available funds to Future. This means planning for a secure financial future by paying off your debt, having an emergency fund for unexpected costs, and saving and/or investing for the future. Let’s look at each of these in turn.

Paying off debt

In most cases, the interest you pay on debt is higher than what you would earn on savings, so it makes sense to pay off the debt first. There are some exceptions, for example interest-free or low-interest debt, such as student loans. If you are funding your further education through student loans, it’s a good idea to try to minimise other debt, such as credit cards, loans and overdrafts. There’s a useful discussion on this topic here: https://www.moneysavingexpert.com/savings/pay-off-debts/

Keep an emergency fund

This is an extra pot of money you can use in times of emergency or unexpected events. It acts as a buffer, and provides that added protection for you. It’s a good idea to keep this in a separate bank account, and be very disciplined about how you use it.

Savings and Investments

Whether you save or invest depends on your attitude to risk and how much money you have for this purpose. Saving means putting money away and earning some interest on it - you will get it all back plus the interest. Investing involves more risk - whether it’s stocks, whisky, antiques or art, you risk losing your money in the hope that the value will increase and the return will be greater. Most people start out by saving and then look at investing when their earnings increase and they are more used to managing their money effectively. There are all different kinds of savings accounts, for short-term savings goals to longer-term goals where you may wish to put the money away and not touch it for several years. Do some research and compare interest rates and terms to see what suits you best. For more information, see:

https://smarterfinances.co.uk/save-money/

https://www.moneysavingexpert.com/savings/

https://www.moneysavingexpert.com/savings/investment-beginners/

Pensions

Having a pension is effectively giving up some of your disposable income now to save for your future retirement. It can seem a long way off when you are in your late teens and early twenties, however money experts advise to start putting in as much as possible, as early as possible. For more information, see:

https://www.moneysavingexpert.com/investments/

https://moneyfacts.co.uk/retirement/guides/when-to-start-saving-into-a-pension/

https://www.citizensadvice.org.uk/debt-and-money/pensions/starting-a-pension/

NEEDS vs WANTS

One of the trickiest aspects of money management is becoming very clear on the difference between Needs and Wants. We live in a capitalist consumer society, so everywhere we look we are being told we ‘need’ to buy things, through advertising and social media.

To avoid getting into debt, you should not buy something if you do not have the money for it at the point of purchase. Have a think about these questions every time you spend:

do I really need to buy this? Is it a Need or a Want? If it’s a Want, can I afford it now?
have I considered the total costs involved? For example, if I buy a car I will also need to be able to pay for fuel, servicing, repairs and insurance. I will also likely lose money when I sell it.
can I defer the decision to buy? Non-essential purchases can usually wait until tomorrow at least. How can I take some time to think about whether I really want to spend on this?
if I really cannot afford to buy it now, but I know I want it, can I make a plan to save up for it, and buy it in the future?

Our challenge to you!

Next time that you really want to buy something or ‘treat yourself’ - whether it’s a coffee or a new pair of trainers - try not to buy it. Pause and wait. Write down what feelings or desires you had at the time you wanted to make the purchase. Then, notice how you feel about not buying it after a few days have gone by. Do you still want it? Did the feelings change? Becoming aware of our wants, desires and feelings around money will make it easier to manage.

Finally, please let us know if there are any other money-related topics that you’d like us to cover.

Further resources:

Advice on coping with the rising cost of living: www.stepchange.org/how-we-help/rising-cost-of-living.aspx

https://www.moneysavingexpert.com/budgeting-debt-help/

Money advice websites:

www.moneyadvicescotland.org.uk/listing/category/young-people-s4-6

young.scot/campaigns/national/money-and-me

www.princes-trust.org.uk/help-for-young-people/tools-resources/money-management

www.moneysavingexpert.com/banking/budget-planning

www.citizensadvice.org.uk/debt-and-money/

Student finance:

https://www.moneysavingexpert.com/students/