Sometimes waving a magic MoneySaving wand and changing all your providers isnít enough to really improve your finances. Two further simple words are needed... STOP SPENDING.
Whether you need scaring into it, or tips on cutting back, this guide and the frightening Demotivator tool will help tackle those spending demons.
In this guide...
Cut Your Bills Checklist
Need scaring into this?
Martin met a good middle-class family for a media money makeover. First, they admitted shame at £60,000 credit-card debt, a sum that mathematically would take them two years of after-tax income to repay even if theyíd no bills to pay or food to buy.
Yet what they initially hid from Martin, and themselves, was that a further jaw-dropping £120,000 of their mortgage had originally been splurged on plastic then shifted onto the home loan.
Thatís £180,000 overspending in less than a decade, yet these werenít obviously profligate folk. Like many, theyíd simply stumbled into the trap of wrongly believing they were wealthy and tried to give their family the best. Inevitably, solving such gargantuan financial indiscipline just takes two simple words....
Thatís easy to say and a nightmare to do. Yet in their case an abrupt spending defibrillation was the only way. To get them back on track, they needed to simply vow not to lay out for anything barring food, heat and essential bills. For most people, that's unnecessary, but get it wrong and things can get that bad.
Surely it's only a little debt?
Putting a little debt on cards may not seem too bad, yet if it's unplanned and not budgeted for, it's simply willy-nilly overspending, and youíre setting yourself up for a disaster, and not just financially. Too many times Iíve seen the impact debt crisis has on homes, family, mental health and relationships.
You may feel this is over-dramatising. Yet when thereís no money left, you canít borrow more, and the creditors are asking for money back which youíve no ability to repay, it touches every element of your life.
The danger is whatís called a Ďdebt spiralí. It works like this:
Do you spend more than you earn?
Thereís no need to stop spending for the sake of it. If you enjoy a cappuccino, can afford it, arenít in debt and arenít overpaying, sup away. Yet as Dickens' Micawber principle states:
Annual income twenty pounds, annual expenditure nineteen ninety six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
There are two ways to check if youíre spending more than you earn.
The BIG danger signal. Are you in debt?
If you are, and canít answer the question 'what are your debts from?' thereís a problem. If you didnít buy, for example, a car or a conservatory, but you've used cards or loans to fill gaps, an ear-piercing alarm should ring.
Debt is fine if it is planned, rational, budgeted for and as cheap as possible. But if you consistently need to use the credit cards to supplement your monthly spend, you have a problem. Do that, and as Iíll explain in a moment, it can have life-destroying consequences.
Do a budget to work out where you're WASTING cash
If you are spending more than you earn, thereís a simple way to accurately check. The specially designed Budget Planner calculates your genuine annual income and then tells you exactly how much more you spend than you earn.
Most people are shocked by the result, as many of those who think theyíre within budget month-by-month arenít when itís done over a year. This is the start point of sorting out your cash. If possible, sit down and spend the time to do the budget. The planner also then helps you prioritise your spending.
The Demotivator is special fun tool designed to complement the full Budget Planner that shows you the real impact of discretionary spending.
Simply enter items like cigarettes, daily sandwiches, newspapers and itíll tell you how much you spend a year, and how long you worked to buy them. Then print out the results and stick it to your wall or fridge as a constant demotivating reminder.
One of the big problems is people ask the wrong questions. In Martin's job as Money Saving Expert people come up to him all the time and ask something like:
How do I get the shiny new car / glamorous holiday / amazing Christmas / designer clothes I want on my paltry salary?
It's thinking this way that leads people to constant overspend, because you're totally ignoring the financial reality. Instead the real question's:
On my paltry salary, whatís the best lifestyle I can possibly have?
You have to start letting your finances rule your lifestyle, not vice-versa.
To do this, as noted earlier, the task is to sit down for a brutally frank financial self-assessment. We donít mean a prissy budget looking at a monthís expenditure. That omits the cost of Christmas, summer holidays, MOT tests and more.
We mean scrutinise everything, big and small, over a year, to prioritise whatís important and cutting anything that pushes your spending beyond your income. Use the free Budget Planner tool to do it for you. Yet be warned, itís the real deal, so set aside two hours and prepare for a sinking feeling when pressing the ďDo I spend more than I earn?Ē button.
Once you know what you've got and what you can spend it on, then you need to find a way to stick to it. An easy way to do this is to use the Piggybanking technique which uses different bank accounts to control your cash flow (if you're in severe debt, also see the the Problem Debts article).
If you haven't got enough income to pay for everything you want to, then you've got to work out what's most important to you.
First should come all necessary bills, rent, mortgage, food and clothing, but after that there's wriggle-room for making your own spending decisions.
Anything that checks our impulses can be a kick-butt powerhouse. Early in Martin's career for a telly programme, he was asked to devise a ĎMartinís Money Mantraí to do this. Different scenarios require different approaches, so he ended up with two - each has questions to ask before you buy.
Many people swear by them (some at them), and requested credit card-sized versions, so we designed a free wallet-sized Money Mantra Card, designed for you to print, pop in your purse and whip out before you buy.
Perhaps the most difficult to self-assess is the ďwill I use it?Ē which examines what economists call 'opportunity cost' - in other words, could you get better use or pleasure out of the same cash buying something else? So is a stunning £300 dress thatíll be used once worth it, if the same money could buy other items used more often?
A story from Martin...
My favourite example of this is shopping with a female friend, who hates me telling this story. Sheíd spotted two pairs of leather boots and was deliberating between them. I checked prices - one £40, the other £110 - yet she was only concerned with preferred style.
So I whipped £70 cash out and held it up with the £40 pair to show the real decision was one pair of boots plus the cash, or just the rival boots alone. She paused and with genuine interest said 'wow, Iíve never thought of it like that before'.
Five minutes later she bought the more expensive boots anyway though Ė you canít win Ďem all!
For the real top tricks to cut back, you need to ask those who live it. The Debt-Free Wannabe section of our web forum is a community that works together to clear often-heavy debts at speed.
We asked regulars on there - many are the kings & queens of personal budgeting - for their top tips in the Great Stop Spending Hunt. Here are some of the best...
Sleep on it
If you really want something, sleep on it for a night. You may find it doesnít seem as attractive the next day!
Work out what it costs in work time
If youíre tempted by an impulse buy, work out how long it would take you to earn that money in hours worked. So if you get paid £5/hour and it costs £150, thatís an extra 36 hours youíll need to work to fund it, taking into account tax (our Demotivator will do this for you).
Focus on your debt/savings
Work out how much longer it will take you to pay off your debt or increase your savings if you give in. To put it into perspective, if youíre saving for a holiday think "that costs one day in Miami"...
Check if you're leaking money via unused subs & payments
Many have costly subscriptions for gyms, mags, packaged bank accounts and more, yet rarely or never use them - or with time and home moves, forget about 'em altogether.
First, check for regular payments going out of your bank account for services you no longer use - then CANCEL them. You may even be able to get a refund. See how to do it in Cancel Direct Debits.
Then take it up a notch and ask yourself if you REALLY need it. Even if you DO occasionally use that pricey gym/Spotify/Netflix subscription, if you're overspending right now it may be a luxury you can't afford. Look for cheap alternatives - see Free Gym Passes, Free Music Streaming and Free Online Movies & Box Sets.
Go food shopping just once a month and plan, plan, plan!
Set a budget, write a food plan and take a calculator with you when you go food shopping. And never go when hungry - it's too tempting to overbuy. By going just once a month youíll be less likely to buy on impulse and for convenience. Top up with milk and bread in between (also see the Supermarket Saving Secrets guide).
Leave debit/credit cards at home
Only take the cash you absolutely need with you and don't have a cash card with you to take extra out of the hole in the wall. That way, however tempted you are, you have to walk away in the end.
Avoid temptation - donít go shopping
If you donít go to the shops, you canít be lured by nice things. Stay at home Ė simple as that! If you like to while away your leisure time by going shopping, do something else instead! Keep busy and you wonít be tempted to get out your wallet.
For every new thing you buy, try to get rid of an old thing
If you really want to buy something new, see if you can sell something you donít use any more to cover the cost.
Make a list and stick to it
Always make a shopping list before you go to the stores and see tempting goodies. Then once youíre out Ė donít stray from it.
Try online grocery shopping
If you canít stick to a shopping list, try ordering your shopping online. Itís easier to stick to a budget as you get a running total, plus you wonít be tempted by the sights and sounds in the shop (see the Cheap Online Shopping guide).
Keep a list of your debts/savings targets in your wallet
Every time you open your wallet for a potential purchase youíll be reminded of why you shouldnít be spending money.
If you really need to replace something, try Freecycle or take up offers of hand-me-downs from friends and family.
Think of your credit card as a debt card
Remember until you pay it off, you're spending the bankís money not yours. Think of it as a debt card and you might not be so hasty reaching for your wallet (also ensure the debt is as cheap as possible, see the Cards and Loans section)
Make it a challenge to come up with creative nights out or in on a budget. It could be a picnic in the park or a movie night at home. Or if thereís something particular you want to buy, see how quickly you can raise the funds through extra means.
Start a new hobby
Spend time on a new (free) activity like running or do some volunteer work. This leaves less time for spending.
Pay yourself pocket money
Set up another account for bills and use this to make sure all your bills are paid. With the money left over you can pay yourself a set amount which is yours to spend as you like.
Stick loose change in a savings jar. Youíll be less likely to break a note to spend and once the change has built up, pay it into your account or off a credit card (see the £2 Coin Challenge).
Take a packed lunch to work Ė keeps you out of harm's way
Itís an old one but a good one, making a packed lunch doesnít just stop you being tempted by expensive sandwich shops, it also keeps you from the pub or easy trips out with friends where money flows out.
Keep a debt diary
Write a note of when youíre likely to over spend. If you can identify trends that lead to overspending you might be able to prevent them or vent in some other way.
Make your own at home
Whatever your vice is, whether itís pizza, beer or frothy cappuccinos, try making it at home for a fraction of the cost.
Once or twice a week have a day where you spend nothing other than budgeted-for things. Quite often just spending once can break the cycle for the rest of the day.
Easy ways to cut back
There are two ways to cut your expenditure:
This means being a better consumer and getting better deals on everything you do. Itís what this siteís all about. Use the Money Makeover article to see all the areas where you can save.
If youíre asking why itís called Ďpain-freeí Ė the answer's simple Ė these changes shouldnít impact your lifestyle. So maximise the pain free savings and then re-budget to see if you still need the next step.
After all the pain-free saving, the next step is to curtail your lifestyle, and stop spending on the things you commonly spend on. Itís all about self-discipline. And again, to help, we asked forum users to suggest their ideas in the Great Ways to Cut Back Hunt - below are some of their suggestions.
From house swapping to organising a night in with your friends and family - here are just a few tips to help curb spending on entertainment and lifestyle expenses.
All those trips to the salon add up - here are just a few tips to cut back on health and beauty expenses.
Below we have just a few ideas for cutting down the cost of spending in the home. For more, get Martin's book, Thrifty Ways For Modern Days - it's full of cost-cutting tips in the home and all author proceeds go to charity.
Saving energy isn't about just getting the best deal from your gas and electricity supplier, oh no. Here are some simple tips to cut your energy costs. For more help see: Cheap Gas & Elec, Water Bills Cost Cutting, Boiler/Central Heating Cover and Energy Mythbusting.
From discounts to shopping when you're hungry, it's easy to overspend in the shops. That's why we've got a few easy and quick tips to cut your shopping tips, see below. For more help: Supermarket Shopping, The Mega Shopbot, Cheap Online Shopping and Discount Vouchers.