This is a guest post by Matthew Needham. Matthew is qualified accountant, freelance interim manager and change consultant. He works with both organisations and businesses, both large and small, to help them reduce costs, improve customer service and improve business proecesses. He is the writer at www.bigredtomatocompany.co.uk a blog for those who want to make their own small dent in the universe, by being a better leader and living a better life.
In March I featured a series of posts called March is Money Month to help readers make better use of their money. I thought I’d share with you today how I lifehack my own finances and how you can too.
In this post i’ll talk about how I automate my money flows, pay my credit cards, bills and my savings and investments, using automatic transfers so my money knows where to go and I don’t have to worry about it.
I used to be employed and get a salary transfer into my bank each month. I’m now a freelancer, but as I work pretty much with one client at a time my income follows regular patterns.
As a result, the 23rd of each month is a day ingrained on my mind, so this is the day I ‘pay’ myself, by transferring money from my business account to my personal account.
On the 25th of each month, I transfer out of my personal account; 5% into my emergency savings fund and 10% transferred into my cash ISA (Individual Savings Account). Before I pay my bills I make sure my savings are taken care of. I manage on what’s left over, rather than saving what remains after the month’s spending has taken place.
By limiting the money I have each month, it’s much more difficult to overspend. Of this remaining 80%, the bank automatically transfers 60% of the money into a separate account at my bank to pay all my fixed costs to what I call my bills account.
My bills account then makes all the regular payments it needs to. Credit card bills, loans, utility bills etc.
The remaining 20% is my ‘guilt free’ spending money which I can use to go out with my wife and spend time with friends. (Although with a new baby on the way, it’s all going on the little one)
I have some debt which I’m accelerating paying off with the other 5%, but once I’ve cleared the debt the 5% will go towards my savings goals.
Here’s what you need to do to automate your finances:
Set up regular payments
If you’ve got online accounts you can set up payments easily between them, otherwise you might have to get the bank to do this for you.
Pay your bills by direct debit or standing order, including your credit cards. Contact all the companies that bill you on a regular basis and ask them if you can pay by direct debit or standing order.
Some people charge everything to their credit cards. You can do this, but it’s a level of complexity I can do without at the moment so I don’t bother. If you’re on a good reward system with your credit card company, this is something you might like to consider. (As long as you pay you bill off in full each month).
Where you do pay monthly by standing order or direct debit you need to check all the bills before they get deducted from your account.
If your credit card is of the type that only takes a minimum payment, you will need to log into your credit card account and check the balance, then transfer funds from your bills account over over to pay your credit card.
photo credit: TheTruthAbout…
What do you think? Is there anything you’d add to lifehack your finances?
Hi James, thanks for including my guest post here, most appreciated.
.-= Matthew Needham´s last blog ..What you can learn from chefs =-.
Hi Matthew,
These are some great tips, especially about paying yourself first – before bills are paid. Otherwise, what are you slaving away for? Life can’t be just about making money to pay the bills.
I also do automatic transfers into my accounts and this is great because it’s all taken care of. You don’t see the money as it’s already been transferred to your ISA account. You only get to spend what’s left.
While many people moan about credit cards, I think that they can be a valuable tool and are not all created equal. If you pay off the balance monthly (and not just pay the minimum), then they can be a major tool in your financial toolbelt. However, if you are the type of person who can’t handle credit cards, then don’t even apply for one. The risk can be too much for some people who abuse them.
Good tips.
Karen
.-= Karen´s last blog ..Are You Paying Attention? Help Can Come From Anywhere =-.
Thanks Karen for your comments. You’re right credit cards can be very useful if used correctly. However, for many people they are too big a temptation to spend more than they have. Unless you’re really disciplined, then it’s probably best to avoid their use.
.-= Matthew Needham´s last blog ..Video: customer service =-.
Great post….
I am terrible with money in a sense, I am ok admitting that and I know why it is, I think a massive influence is our reaction to other peoples reaction to money, IE close relatives like your parents.
It really does effect you later in life I found, hard to deal with and if I am honest, still dealing with it when i am in my late 30′s… it’s just odd, we do have a relationship with money like with everything else.
The one thing is my lads won’t have the same issues I had with it, as that influence was different, hopefully they follow what I have tried to show them, there is value in saving your money, even if dad was crap at it, and the only thing they need to do is to make it a real HABIT.
When I did have issues my lads could see what a difference it would have made had I had the habit of saving, how it would help.
I am crap with money in some ways, yet I can also if I have to, survive without it at times, because I don’t place the same value on it as some and during my childhood money caused issues… not the lack of it, or having too much of it, just the way it made things… the importance of it become more important than other things which I felt and still feel are more important.
If you get my drift.
I am not one to hide behind fake riches, not one to blindly chase money without a thought for the other important things.
But I do hope that the habit of saving is one my lads do stick with.
They know the value of money, not the importance of it in a sense.
.-= rob sellen´s last blog ..Money can’t buy happiness =-.
Hi Rob,
Thanks so much for sharing your experiences. It’s very true that most peoples ability to manage money is from the experiences they had as children.
Teaching your children whilst they are young the importance of money management is probably the greatest skills that you can give them.
Matthew
.-= Matthew Needham´s last blog ..Video: customer service =-.
Yeah mate, in a way it’s worse when you don’t teach your kids yet what they actually see is bad and they make their own conclusions.
They see the behaviour around it… not always good.
.-= rob sellen´s last blog ..Google a mass of contradictions? =-.
You know, sometimes it might be worth letting your kids ‘fail’ in a small way so that they can learn life’s lessons.
Although I can imagine that’s hard to do as a parent.
.-= Matthew Needham´s last blog ..Challenge: Save £1000/$1000 in 30 days update =-.
Yeah, I agree, depends what it is…
.-= rob sellen´s last blog ..Google a mass of contradictions? =-.
Top quality post my friend.
I use these points every day and have done for a while now. I was left with a good amount of debt from my first business, but by organising your financies it becomes less of a burden and easier to manage.
Suffice to say that I paid my debts well before the bank wanted, leaving me in a good position for the future.
Thanks for sharing!
.-= Phil Johnson´s last blog ..Choosing the right name for your business =-.
Hi Phil, thanks for sharing your story.
It’s very liberating once you’ve cleared debt. Even clearing small debts gives you enthusiasm for tackling the larger ones.
Matthew
.-= Matthew Needham´s last blog ..Pay your self first and other money lessons =-.
Hi James
Good tips – nice one
I disagree about direct debits for utilities, though. I like to have control. For instance, my last BT bill was way too high because BT had managed to change my calling plan. They eventually admitted to the mistake but if I’d been paying by direct debit I could have missed that. Also, why give money to utility companies monthly when you could keep it in your account earning interest? No, what I do is transfer enough each month into a savings account to cover my quarterly utility bills and then, when a bill comes in, I have a pot from which to pay it.
Another tip I like is to practice delayed gratification. No, it’s nothing like that, so stop giggling at the back. Basically, it means if you want something (new car, new phone, new TV whatever) then don’t go out and buy it on credit but save up until you can actually afford it. This has two benefits – it stops you getting into debt and stops you buying things on impulse that you don’t really need.
The only debt I have is a mortgage (offset tracker – brilliant) and that’s modest thanks to buying and selling houses over the years, and I’m overpaying furiously to get it paid off early (google ‘compound interest’ if you don’t already know about it).
Hope this adds something useful to your great post!
Cheers
Phil
Hey Brother this was Matthew’s guest post.
Sorry, James and Matthew, brain not in gear!
Cheers
Phil
ha ha good pun!
No worries!
.-= Matthew Needham´s last blog ..What you can learn from chefs =-.
Hi Phil, thanks for your comment.
I personally use Utility Warehouse for my Gas, Electric, Phone/Internet as the bill is monthly, so I’m always paying exactly what I use. However for many people a fixed amount each month helps them budget and reduces ‘nasty’ surprises.
Saving in a separate account would be a good alternative.
Delayed gratification is a great concept, but sometimes difficult to apply! You’re absolutely right though, thanks for sharing.
Matthew
.-= Matthew Needham´s last blog ..Video: customer service =-.
Any way you can save money is good as saving money is crucial to getting ahead in this world and doing better than you’re currently at.
I’m not great at saving money but I’m not bad. I just use my ING account that way I can still touch it but it’s not as easy to touch. It’s been working pretty well for me actually.
Great post Matt!
.-= Eric´s last blog ..My Best Blogging Tip =-.
Hey Eric, thanks for your comment.
I think you’re too hard on yourself because you always say you’re not good at managing money when you save regularly and don’t use credit cards!!
You’re doing very well!!!
.-= Matthew Needham´s last blog ..Thursday Thoughts =-.
Matt,
Thanks and yes I’m too hard on myself quite a lot actually. Something I need to work on.
When money is there I save it so yes I’d agree I’m doing rather well.
.-= Eric´s last blog ..My Best Blogging Tip =-.
Pretty cool your system. I am just reading “I Will Teach You to Be Rich” and he actually advises to use a similar system.
I am not really working at the moment but I am still trying to safe money and so far it seems to be working.
.-= Julius Kuhn-Regnier´s last blog ..What Traveling through Scotland Taught Me about Blogging =-.
Hi Julius, thanks for your comment.
I’ve read that book and I thought it had some great tips for systemising money management.
I’m sorry to hear you’re not working, try and keep your costs down and save what you can and increase saving when you’re working.
Good luck! Matthew
.-= Matthew Needham´s last blog ..Pay your self first and other money lessons =-.
automation and guilt free is the way to go. I like sending my money into lifecycle funds, that way the investment is autobalance every year or so as I get older. I also automatically send the same amount into the fund month after month which leads me with a couple hundered “guilt free” to spend on whatever I want.
Thanks for your comment. The other expression I often use is ‘fire and forget’ finances.
Sounds like you’ve got things well under control, brilliant! Thank you for sharing.
.-= Matthew Needham´s last blog ..Video: customer service =-.
I especially like the idea of setting money aside for your savings first and then dealing with the bills afterwards. I always tend to spend money on bills and other expenses before looking at what’s left. Thanks for the tip.
.-= Julius´s last blog ..How to Caption Videos in YouTube =-.