Round about this time last year, I rather lost track of my finances, and come Christmas, I found myself nudging against my credit card limit (which isn’t massive, but isn’t small, either) and having extended my overdraft four times in as many months. Again, well within what the building society was prepared to lend me, but still, always a bit depressing when your wages go in and a massive chunk of it immediately disappears.
Suboptimal, to say the least.
I’d had a subscription to budgeting software called You Need a Budget* since the previous February, but hadn’t been using it (you all know I’m a part-time idiot, right?), so time to bite the bullet.
I uploaded a couple of months of bank statements so I could see where my money was going (oh. Um. Even with Christmas, that’s best filed under “wanton profligacy”), and used that as the basis for setting my budget for the next month, and settled down to some serious “getting on top of this nonsense,” with a side helping of “what’s done is done, no point getting angry at Past Me’s decisions, how do I get out of the situation I find myself in, preferably with a minimal consumption of beans on toast?”
I cancelled magazine subscriptions for magazines I wasn’t reading, and memberships for places I wasn’t visiting. This had the added benefit of reducing stress of the “will this payment go through? Will I have to extend my overdraft again?” variety. Highly recommended. I also made a point to start visiting the places whose memberships I wanted to keep, because I’ve now adopted a strict “use it or lose it” policy. No point, after all, paying £80 a year to the British Museum if you never actually go there. I reviewed various other regular payments, and switched contracts and providers.
Thanks to my annual bonus being rather more generous than I was expecting, and passing my exams, which meant that work refunded me for my college tuition, I paid off the credit card in just over four months. I was sat in bed, on my birthday, in a hotel in Iceland, logged into my banking app, transferring money to my credit card, because obviously who has anything better to do with their time under that particular set of circumstances? Fortunately, the chap is very understanding and he merely laughed and told me he was proud of me.
From there, I switched my attention to the overdraft, which I tackled by logging into the building society app and reducing it by a set amount each month. I’ve managed to make such inroads into it that at the time of writing, it’s 14 days before pay day and my bank account is still in credit, by a pleasing margin. I reckon that even with going on holiday to the States in a few days, my account will have a positive balance the day before I get paid, which has been unheard of since I don’t know when.
It meant that I could apply for Cricket World Cup tickets without worrying that if I got all the tickets I applied for, the payment would bounce because it would take me over my credit card limit. Some things are worth getting into debt for, however, so I (a) made a judgement call and (b) made a point of asking people who owe me money to put their hands in their pockets, FFS, woman. As it was, I nearly lost the tickets I did win in the ballot because thanks to a huge data breach at Ticketmaster my card was cloned and someone spent an unfeasibly huge amount of money with Deliveroo. Fortunately, the replacement card arrived within the extended deadline the ICC gave me and I’m going to the World Cup Final, woo-hoo.
YNAB works on the “envelope” system of budgeting. You take your cleared income (never budget money you haven’t got), and apply Rule 1 “give every
dollar pound a job.” What does this money need to do before I get paid next? Then you move down the categories, assigning money until you run out. The goal is that you should run out of categories before you run out of money, not the other way around. However, the categories are grouped in order of priority, so housing costs and groceries are up at the top, and “just for fun” categories are down at the bottom. If you run out of money before you run out of categories, the essential categories are funded first.
It also accounts for future charges (Rule two, “embrace your true expenses”.) I pay my household insurance in one go when the policy is due. I know what I paid this year, so I added a bit for inflation and set myself a savings goal for the time the premium rolls around. It tells me how much I need to save this month, and I have that money in my instant savings account, waiting to be put to work. And since every pound needs to have a job, its current job is “making me more pounds,” because the savings account earns 4% interest. I’ve been short-sighted my entire life, so “new glasses and prescription sunglasses every two years” shouldn’t be a surprise, and nor should other annual expenses.
The site comes pre-loaded with a set of budget categories, but you can edit and adapt these to your circumstances. I don’t have satellite TV, but I do have the Worst Book Habit in the Entire World, so I got rid of the TV subscriptions category and replaced it with “Books”. Circumstances change (rule three, “roll with the punches”), so I now have a couple of budget categories I didn’t have to start with, namely “cricket tickets” and “paddleboarding”. It’s your budget, you make it work for you, rather than you working for it.
I’m working towards rule 4, “age your money.” The idea is that when you have a cushion of savings, you can make decisions calmly. If you aren’t juggling bills and pay cheques, you have breathing room when the unexpected happens, and you have a cushion for when that unexpected thing happens. Having just spent a Saturday replacing the power supply on my aging PC, saving for technology replacement is rather higher up the priority list than it had been previously. I changed electricity suppliers, and it doesn’t really matter that the bill goes out on the week before payday, rather than the week after – I know it’s coming up, it’s budgeted for, the money is sitting there waiting to do its job.
I was lucky, in that my debts were never so high that I was seriously struggling – the bills were always paid and I always paid more than the minimum on my credit card, but “paying £50 a month in interest, plus an unbudgeted and not really thought-out card payment,” means that the fun stuff doesn’t happen, or if it does, it goes on the credit card and it sets up a vicious circle, and the last week of the month was a bit anxious – will I have to extend my overdraft? Oh, no, it’s OK, this time. I could clear my debts with very little serious economising, due to the timing of my annual bonus and other payments, but being debt-free gives you options. My brother paid me some money he owed me, and I didn’t have to pay it onto my credit card, because my credit card doesn’t have a balance on it, so it’s gone into the holiday fund. Every time I’ve been by the Thames or the Regent’s Canal, I’ve seen people paddleboarding, and thought “that looks like fun,” so I checked my budget and there was enough in the “fun money” fund for me to book my first lesson. I was right, it is fun, so now I’ve got a “paddleboarding” category in my budget.
If you need help with significant debts, I think the MoneySavingExpert debt boards are very highly thought of, as is the Citizen’s Advice Bureau, but I think the CAB are very overloaded and you may struggle to get an appointment.
[As an aside, I don’t like the way that YNAB deals with overdrafts, they come at it from a US perspective, where I understand that any sort of overdraft is more like a UK unauthorised overdraft – massive charges and bounced payments, and a general world of hurt, so you need to fudge it a bit until the overdraft is cleared. There are various threads on Reddit and other places about how to account for a UK overdraft, although the goal should be to treat it like a debt and get rid of it, if you can.]
*This is an affiliate/referrer link – if you sign up through this, I get a free month on my subscription, and you get a free month too.