The Level 1 Money Plan

The money struggle is real.

If you’re like me, you’ve tried numerous ways to get a grip on it, but 15 Excel spreadsheets, 5 apps and 2 best friend-turned-financial advisers later, nothing ever seems to work. It seems like you’re forever in a bind and forever taking from one pot (usually any savings) to make up for over spending or not having enough in another pot i.e. petrol because you just bought a new pair of shoes. Excel budget sheets get more complicated and the pay cheque to pay cheque life spirals out of control.

You know it needs to stop and it needs to change soon before you crash and burn but how do you do that? Where do you begin? How do you even start to get better with your money?

As ever, if you want to learn something new in life, you’ve got to start with the basics. Something simple and easy to implement straight away is more effective for me than a long winded grand plan so the following steps were really useful for me when I first started to deal with my poor money management. They are what I call ‘Level 1 Money Management’ or The Most Basic Plan.

When we want to manage our money we need to change our mindset from budgeting to planning. We need to plan out what we are going to do with the money that comes into our hand rather than spend our time focusing on how not to lose it. If we stick to our plan, we see that we end up keeping more of it than we otherwise would. 

I think these steps are the most fundamental elements to this journey. They will help you to know where you are, where you’re going and will also help you to identify the holes in your financial health so that you can start to patch things up.

1. Figure out where you are.

 This is always the first thing to do.

You can’t really move forward if you don’t know where you are. Once you’ve figured this out, you’ll have a better idea of what to do when you take the next step. You need to do this in two parts:

i) Do a ‘self’ analysis

It’s important that you take a long hard look at your relationship with money and do a thorough self-analysis.

Ask yourself the following questions:

  • What do I think of money? (Good, bad, confusing or ugly?)
  • What is my relationship with money?
  • Do I spend my money as soon as I get it?
  • Do I shop first bills later?
  • What do I feel like when I am spending money?
  • Do I buy on impulse and when do I do this? 
  • Do I use shopping a therapy for when I am upset or angry or bored?
  • What do I spend most of my money on?
  • Do I keep track of what I buy?
  • Do I have more money at the end of the month or more month and the end of my money?
  • Do I have a budget?
  • Am I a yo-yo budgeter? Budget sometimes, throw caution to the wind at other times?
  • Do I spend more than I am earning?
    • If yes, do I know how much debt I have?
    • Who do I owe and how much do I owe them?
    • Where are my debts from?/ What are they? (Credit cards, mortgage, store cards…)
    • Do I pay my bills on time?
    • If no, what stops me from paying my bills on time/
    • When did this style of (mis)management start ?
    • What causes me to get into debt? (Do I get into debt trying to keep up with the latest trends or is it for things I “just have to have”?)
    • What do I want to do with money that I cant do now because of the situation I’m in?
  • What do I want my relationship with money to be like in the future?
  • Am I willing to put in the effort to change that even if it is hard?

The answers to these questions can go a long way in helping you to understand what and why you do what you do with your money.

ii) Do a ‘money analysis’

What shape are your finances in? What shape are you in monthly and yearly?

Get all your bank statements and any receipts for the last 3 months and create a spreadsheet (or use a pre-made one)  where you can log the amounts that you’ve spent under different categories – bills, food, travel social activities, children, school, courses and any thing extra you might spend on. This will give you enough information to get a rough idea of the average amount you spend in these categories each month and each year.

Compare the total amount that you spend monthly to your total income each month or for the year. If your spending is more than your income, ah! you’re in debt and you need to get out quick! This is a dangerous place to be in but it’s not irreparable. If you’re spending is less than your income that’s great! However, there are still tips you can use to help you manage your money better.

Whether you are in debt or not, periodically analysing your finances can give you a very good insight into how you are currently spending your money. It can also alert you to areas that need to be improved or changed. When I looked at mine I realised that I spent a hell of a lot on food and snacks during the day and of course, on impulse buys. Those £3 Starbucks coffees all add up if you have them every day and the money could be better spent elsewhere!

2. Determine what you NEED beforehand and set it aside.

Of all the steps, I believe that this step will help solve a lot of problems immediately. For most of us, the main reason we have more month than money before the next pay day, is that we haven’t actually assessed how much we actually need to get by. We haven’t set aside this money so that come rain or shine we can pay for what we need to.

The next important thing to do, is sit down and actually work out how much money you need to be able to survive for a typical month – this is the real start of your Level 1 Plan.

Write down all your monthly expenses (you can cost some things by week if it makes it easier) – this list should be made up of only the basic things you need to get byWork out how much you need to pay your: rent, phone bill, gas, electricity, TV license, TV subscription, council tax, minimum credit card payments, food for the house, car insurance, petrol, travel to work, food at work and anything else that is a necessary basic spend in a month. New shoes and eating out don’t count. Calculate the total.

This amount is the minimum amount of money you need each month to get by. It is also the minimum amount of income you need to be bringing in.

This amount should be set aside and earmarked as untouchable. Without this amount you can’t survive!

I do what is called the “Piggy-Banking” technique. This technique involves putting this “necessary” money in a completely different account to the money I spend on other things day to day (the money left over after the necessary money has been taken out of my income). The benefits of doing this is:

  • Having it in a separate account means that I am less tempted to touch it and spend it.
  • All my bills get paid and I’m not defaulting.
  • All of my bills are on direct debit and they all come from this one account.

You could leave this amount in your normal account but you have to be very disciplined and if you can’t be it’s better to remove the temptation.

All my bills come out around the same time, just after I’ve been paid. You can actually call the people you pay your bills to and ask them if they can change the date that you get billed or that your direct debit gets taken out so that they all come out around the same time. If you set it up for just after you’ve been paid, you will rarely have to worry about not being able to pay your bills because they are taken as soon as. Whatever money is left after I put this ‘necessary money’ away is the money I have to spend on other things.

3. Live on the rest

So the necessary money has been put aside, (don’t ever touch it! Your survival depends on it!!!), the rest is yours to live on.  You can do as you wish with this money. You can go out, buy that cute top you were eyeing, save the money in a box under your bed – whatever you like. Your day to day is covered and this is your disposable income.

A better idea, however, would be to create a plan for this money also.

If you have a fair bit of money left over it would be useful to use  The Level 2 Money Plan. If you don’t have too much, you can still manage this money well, so that it lasts for the month. I try to split this money between the numbers of weeks there are in the month so that I have a set amount per week to use. Sometimes I spend the whole weekly amount and at other times I spend less but once it’s gone, it’s gone. If I use up all my disposable income I can’t touch my necessary spend amount…back to staying in for the rest of the month!

In Conclusion…..

Taking the time now to plan what you will need for the next month is a great way to start getting back on track with your money. It means you don’t get caught out with bills or not having enough for what you really need and you’re not left frustrated. You can even set money aside to cover the social events you know you will be attending in the next month. Makes life much easier.

This is just a basic plan. It doesn’t include saving, investing or anything extra. This is just the most basic way to make sure that you are covering your essentials and not getting into extra debt trying to make ends meet each month.

It is hard at first and takes a bit of patience and practice. Bad habits are hard to get rid of but not impossible. Sometimes I would get carried away and fall off the wagon, but if this happens I just press reset, go back to point 2. and start again.

1. Figure out where you are.

2. Determine what you NEED and set it aside.

3. Live on the rest.

What do you think of this plan? What do you do to get your finances back on track? Leave a comment below.

Stay financially fabulous,

xXx

P.S. As I was writing this, I thought about when I started doing this plan, it was at a time when I had barely any disposable income so I have also written a bit about ways to manage debt and ways that you can make more money here.

 

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