How to Manage Your Money

Revolut Contributor

 · 04/29/2020  · 04/29/2020

Chances are it’s been a while since you’ve had to recall every single detail of the Battle of Hastings or recite Pi — but you do have to deal with money. Every. Single. Day.

So, why wasn’t Money Management 101 taught in school?

Many of us need it, even today. Case in point, as of 2017, one in eight UK adults had zero cash saved. Meanwhile, a further 32 percent had less than £2,000 in savings.

Learning to manage money better is a crucial life skill, and by following these 6 simple steps, you’ll be well on your way to taking control of your finances. Ready? It’s crash course time.

Our Brief Guide to Better Money Management

1. First, take stock of your situation

Managing your money goes beyond sums, spreadsheets and penny-pinching. At its core, better money management comes from a shift in mindset.

If, up until now, your relationship with money has been a tricky one, you need to ask yourself some tough questions. And you need to be prepared to dig deep for honest answers.

  • Are you living paycheck to paycheck?
  • Do you have any savings?
  • Have you ever been forced to borrow money from a friend, family member, or pay-day lender?
  • Could you survive an unforeseen bill or expense?
  • Do you understand how to make and follow a budget?

It’s okay if you’ve rhymed off “yes, no, yes, no, no” to those questions. At this stage, it’s about being truthful with yourself and taking measures to correct your bad habits. And that’s where the next step comes in...

2. It’s time to make a budget (and stick to it)

Getting to grips with your finances is a bit like dieting or exercising; it’s easier when there’s a regimen to follow.

So, to budget effectively, you need a plan. We recommend trying the 50/30/20 budget as it’s one of the easiest and most effective to follow.

In short, the 50/30/20 approach suggests that you allocate your income as follows:

  • 50% goes towards needs, like food, housing, utilities, insurance, etc.
  • 30% goes towards wants, like eating out, clothes shopping, hobbies, etc.
  • 20% goes towards savings or debt repayment.

And just as you’d track calories if you were trying to shift pounds, you need to track spending to look after the pennies. Use a tool like Revolut’s budget planner to help you set a monthly budget and monitor and categorise your spending.

Our budget planner also tracks your progress in real-time, helping you stick to your targets with payment notifications that tell you exactly how much you’ve spent — and how much you’ve got left to spend.

3. As your financial picture becomes clearer, identify avoidable expenses

You’ve set up a budget, you’re using our budget tracker and, finally, you have an answer to the question: “Where exactly do my wages go each month?”

So, now’s the time to dig into the detail. Look at your spending categories and identify those unnecessary costs — the ones you can live without.

Do you really need that caramel latte at £3.00 a pop en route to the office every day? Skipping it could save you almost £700 a year. How about all those takeaways? Or a gym membership you hardly ever use?

The aim of the game is to pinpoint and either cut down or eliminate the costs you control. If you can cook more and order in less, go jogging in the park instead of a treadmill, or bring your own coffee from home, it could make a massive difference to your bottom line.

4. Get into the habit of saving and servicing debt

You might think that if you have debt, you can’t afford to save. But if you’ve followed the steps up to this point, you can, in fact, do both.

By identifying those unnecessary costs, you can divert the money saved to paying down your debt and building up your savings:

  • First, target your debt with the highest interest rates, while continuing to make the minimum payments on the rest. Once you’ve cleared the first amount, move onto the next.
  • Meanwhile, start putting money aside into a savings account. You’re not saving for anything in particular here. Rather, this is your emergency fund. Its purpose is to give you peace of mind that you can deal with any unexpected expenses quickly and easily. Aim for £500 as an initial amount and grow from there.

Once you’re in the habit of putting money aside, you can start saving for some of your “wants” from the 50/30/20 rule. Use Revolut Vaults to meet your financial goals by making a one-off or recurring transfer, or by rounding up your spare change and stashing the difference.

5. Manage your income against your expenditure

According to research, 35% of individuals in the UK and US fall short on an expense between pay periods. And let’s face it, we’ve all been there: your budget is looking watertight for the month and then, before pay day arrives, you’re hit with an unexpected bill, charge or expense.

Similarly, what if you know you have a period where your outgoings are going to be greater than usual? Many of us will naturally dip into our rainy day funds, or fall back on credit to see us through. But what if you could set a debit cycle that matched your expenses with your income without having to do either of those things?

Fortunately, that’s where On-Demand Pay by Revolut comes in. Your wages are tracked across the month so you can see exactly how much you’ve earned in real-time and, for a small fee, you can withdraw up to 50% of it whenever you need to.

To start using On-Demand Pay, you’ll need to let your employer know so they can set it up via Revolut Business. It’s super simple, and free to integrate. Win-win!

6. Keep going! You’re always learning how to manage finances

If you’ve made it this far, then it’s important that you keep going. Don’t get discouraged if you make a mistake now and again — brush it off and stick with the plan.

Remember, budgeting is about mindset and discipline. You won’t get it one hundred percent right all of the time, but there are things you can do to stay the course.

For example, many people fall off the budgeting wagon due to impulse purchases. But if you know the 30-day rule, these become easier to avoid.

What’s the 30-day rule? Essentially, when you see something you want, don’t buy it straight away. Write it down somewhere and revisit the idea of buying it in 30 days’ time. If you still want it, and you can afford it, buy it. That way you’ll know for sure that it wasn’t just an impulse.

Better yet, set up a Vault in Revolut for it and put the money aside. You’ll either have the money ready to spend, or you’ll find that you didn’t actually want it, and now you’ve got some spare cash. Win-win!

In Summary

Money management is a difficult skill to master. And it is a skill. You need to stick with it, giving yourself plenty of time to learn and improve. Follow the steps outlined above, and use the handy tools in Revolut. The best way to manage finances is only a few taps away: Get the App.

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