Regardless of the seasons, it’s always a good time to spring clean your finances! There are a few ways to get on top of your spending, but the most effective way to make a difference quickly is to treat it similarly to cleaning out your wardrobe — take a good look at everything and only keep it if you really need it!
So, take a good look at your direct debits and standing orders. Are there things on there that you don’t use? That gym membership that you keep promising yourself you’ll start using again next month? The streaming subscription you keep because “it’s only a tenner”? Each of these small outgoings can amount to a sizable saving every month.
While you’re accessing your bank statements, take a look at your day-to-day outgoings. If you can, print out a monthly statement and highlight transactions such as takeout coffees, meal deals or fast food and snacks. Once you’ve done this for the whole month, add them up and see how much you’re spending each month on these unnecessary purchases. You may find that cutting down on takeout food and drink throughout the week can save you between £40-£80 per month! Try repeating this exercise with other spending, such as unnecessary purchases of clothing, shoes and any other luxuries, such as nights out and weekends away. Soon you’ll have spring cleaned your way to a much healthier bank balance!
How to Avoid Debt Using a Budget
You don’t have to already be in financial difficulty to create and stick to a budget. Budgeting is great for all sorts of circumstances, whether it’s to save up for something special or just to keep a close eye on your income and expenses.
If you’ve taken the first step by spring cleaning your finances, putting a budget in place will help to ensure that your bank balance remains healthy and that you always know what is going in and out. This means that there will be no surprises, and you’ll be less likely to fall into debt due to overspending prior to unexpected payments.
Take a look at our blog about how to make a budget for some great tips!
You can also download our FREE personal budget tool in Excel here.
How to Avoid Impulse Purchases
It’s human nature to see something we like and have to fight the urge to buy it there and then. A great tip is to “give it time”. Often, we see something that we think we couldn’t possibly live without, but a week or a month later, we’re not so fussed. Giving it time means leaving the shop or closing your browser and walking away. After some time, a week or even a month, if you still feel that you could benefit from the purchase, then take a look at your budget and see if you can afford it.
Retailers know that they can benefit from impulse purchasing. When in-store or online, you will see flash sales and limited-time deals. While these are great news when you’re purchasing something you genuinely need and can save you a lot of money, they are not necessarily limited. The law states that to be classed as a “sale” or “offer”, an item must have been full price for a “meaningful amount of time”. So, that new item you simply NEED to buy this week because it’s 20% off in a flash sale was probably only full price for one month of the year. And when it’s full price again, a similar one will replace it in the sale. Take a look at this article on the BBC website about what makes a sale an actual sale.
Are Buy Now Pay Later and 0% Interest Offers a Good Idea?
As a rule, if you can’t afford to purchase something with cash, it’s probably best to save up and buy it outright. Not only can purchasing on credit cost a lot more, but you also don’t know how your financial situation will change over the course of the agreement.
Buy Now Pay Later (BNPL) — Being told that you can take home your item without having paid a single penny for it can seem too good to be true… and it usually is. Most BNPL offers are for 3-12 months and once that time is up, you must start making payments. Again, this doesn’t seem so bad. But there is usually a catch, and it comes in the form of extremely high interest rates if you don’t pay back what you owe before the BNPL term ends. Some retailers charge interest rates as high as 39.9%. This means that if you purchase a £500 item on BNPL and miss the fee-free term, you could end up paying back just under £700. So, for smaller purchases such as clothes and shoes that you can spread over just a few months interest-free, BNPL can work in your favour, but always check the payment terms and interest rates before committing!
0% Interest Offers — Many of the offers that entice people with 0% interest offers are interest-free for a longer period than the BNPL offers, usually 12-48 months. These offers are usually applied to larger purchases, such as furniture and electrical appliances, and if used correctly, they can allow you to make purchases you may not have been otherwise able to make. It is always important to consider affordability, though. If you see an item, before speaking with a salesperson, work out the monthly payments and make sure that you will be able to comfortably afford them. Also consider the agreement term, four years is a long time and your financial situation could change dramatically in that period.
Steps to Take before Applying for Credit
If you’re considering applying for credit to make a purchase, there are a few steps you should take before doing so to avoid getting into more debt than you can afford.
- Go back to the beginning of this blog and take the steps to spring clean your finances. Check your income and expenses to be sure that you can afford the items you are about to purchase.
- Wait a while. As suggested earlier when discussing impulse buying, take some time to think about whether you really need the item. Sometimes, after a few days or a week, you can feel very differently about it!
- If you already have debt, take a look at the agreement term and see if it is ending soon. If you only have a few months left of payments on a loan, can the new purchase wait until then, when you have more affordability?
- If the new purchase is a long-term agreement, can you guarantee that your financial situation will still be the same in four years? Just because you can afford payments now, it doesn’t mean that you will be able to do so in the future, so think carefully about your financial stability.
When all is said and done, managing debt can be difficult. If you have found yourself in a situation where debt is becoming too much to handle, contact Debt Movement today. Our friendly and professional guides can help you to assess your situation, see if there is a debt solution that could benefit you and get you on the road to financial freedom.
