Yesterday, I talked about how my Financial Fitness Plan was going to get you on the road to slimmer spending, bigger savings and nailing that first home. Today we drill down into the details of the plan; follow it closely and you WILL make it over the finish line
Don’t attempt to make ambitious cutbacks all at once. It’s like trying to bench 80kg at the gym on your first day. Start with little luxuries, such as that regular cup of coffee. Fidelity Investments suggests that reluctant savers try an Isa Cappuccino Plan. It reckons that £2.50 spent on a daily caffeine fix could be diverted into a stocks and shares Isa, giving you £50 a month (£600 a year) to play with. Not only would that attract a £150 bonus, your total returns after ten years could top £7,000 if your investments grew at five per cent a year.
You could also make your own lunches each day and take advantage of coupons to save on food expenses. The way I do it is by looking at my online accounts maybe once a week or fortnight and then making note of any exceptionally high/frivolous/unnecessary expenses. For instance, I tell myself “Iona, I’ll let you off the hook for that £30 cleanser because it really does work wonders. But make that the exception rather than the rule.” I’ll ask if there are cheaper options available (Savers & Poundland, anyone?) And whenever I get a decent pay cheque from my freelance earnings (and I’m being relative here guys) I’ll try to put as much as I can into my savings account.
If you struggle with overspending (especially at the shops or on nights out) withdraw cash from an ATM beforehand, leave your card at home and stick to your allotted amount. If you’re prone to an online splurge, install an app or piece of software that blocks access to certain sites. Your future self will thank you!
If you have any loan or credit card debt, pay that down first before you start to save. I cannot stress that enough. Balance-transfer credit cards now give you three years or more to do that, with transfer fees ever more competitive, and there are cards with interest-free deals and no upfront fees. So long as you get the better of the banks, not the other way round, on this one. Check out our debt tamers series for advice here, here and here.
Have a good look at your current account. You should be aiming for two things: not to pay an account fee, and not to pay a daily charge for going into the red. Sounds like a low aim, but it’s basically like trying to keep the weight off once you’ve lost it. It could be worth your while switching your account, and some banks will offer you £100 or more to switch. Sounds tasty, but if you are likely to need an overdraft, choose a bank that charges an interest rate rather than a daily fee. Don’t pay for it by the day (unless you derive a weird pleasure from watching your bank take lots of money away from you!)
Some accounts also have an interest-free buffer to stop you being stung for minor lapses. These are your friend but don’t test your bank’s lending parameters – you should be aiming to stay in the back, not in the red. The current account switching service now guarantees a transfer within seven days, so it’s faster and easier than ever to move your account to one that fits your needs.
The savings habit
Your financial fitness makeover shouldn’t be a flash in the pan – remember, you ain’t doing this just long enough to release a DVD like a true C-lister. You’re in this for the long haul. So to ensure your savings habit actually sticks, set up a regular standing order from your current account into a dedicated savings account, so you don’t notice the money going out.
You could time it for the day after you are paid (great idea!) and it will quickly become natural to you. If you are worried about having enough in reserve for unexpected bills, or holidays, keep a separate account as an emergency fund. Around three months pay should be enough.
And soon enough, your dedicated savings account could be your homebuying nest egg. Now the question is where to put that nest egg – savings or investments? Check out my musings on this subject here and here. If you are serious about becoming a future homeowner, a Lifetime ISA will get you to that destination quicker but there are some major caveats to bear in mind, as I explain here.
So go forth and become financially fit my friend. And please tell everyone you know about my blog so that one day, I can be as rich as bloody Joe Wicks too…