Becoming financially savvy does not require drastic or painful changes, but instead can be achieved through small, sustainable changes. In order to do this, you will need to be able to control both your outflow (spending) and inflow (earning/efficiency). You can do this through shopping smarter, and managing your income or financial infrastructure better.
Mastering The Outflow – Smart Spending
The Concept of Cost-Per-Wear
To spend smarter, you should begin by judging purchases based on how often you will use the item, not just its upfront price. For example, a high quality, durable handbag or accessory that lasts for five years versus a cheap bag that lasts for six months. The higher priced item will have a lower cost per use in the long run, as it will last for longer despite the initial expensive upfront cost. For this reason, it is better to invest in timeless, quality items that will elevate your wardrobe and style, which will reduce the need for constant, trendy replacements.
The Subscription Audit
A regular accumulation of small, monthly fees, such as streaming and apps, can gradually begin to drain your bank account. To combat these costs before they add up too much, dedicate fifteen minutes to review your direct debits and cancel anything that you have not used in over a month. While you may focus on cancelling steaming services, you should be reviewing all of your bills. Even essential services such as electricity, gas or wastewater treatment providers might offer better rates or tariffs if you switch, and you should not let complacency or loyalty to a provider cost you money.
Impulse Buys: The Thirty Day Rule
Another way you can become a smart spender is by controlling your urge to impulse buy things. These sudden, sometimes expensive purchases are the fastest way to negatively impact a budget. A helpful way of tackling this habit is to follow the thirty day rule. For any non-essential purchase, such as a new set of garden furniture or an appliance, that costs over a certain amount (e.g. £50), delay the purchase for thirty days. This mandated waiting period serves to help differentiate between your immediate wants and your actual long-term needs. This cooling off period will help to determine if your urge to buy something was a fleeting desire driven by marketing or emotion, and this can stop you from wasting money as you have allowed your initial excitement and emotions to fade and realise that the item was not actually necessary. If you do still genuinely want the item after a month, you can then confidently buy it, knowing you’ve made a rational choice. However, you will mostly find that the initial desire has passed, and you are instead able to save money or direct it towards your savings goals instead.
Optimising Inflow – Financial Structure
The Hidden Cost of Inefficient Pay
Small inefficiencies in how you get paid can begin to erode your savings and income. If you work remotely, freelance for international clients, or are part of a global company, ensuring smooth global payments is crucial. A small error in exchange rates or compliance can potentially cost hundreds. It is important to understand how you are paid, especially if this is international, to avoid any hidden fees, over-taxation or delays. Make use of resources that ensure your pay is reliable and timely, such as a solid payroll service.
Automating Your Savings & Paying Yourself First
To make saving money easier, you should treat putting money into savings the same way that you would treat a bill that needs to be paid first. A good way of doing this is to set up an automatic transfer the day after payday to move a percentage of your income, such as 5 to 10%, into a high-interest savings account.
Skill Monetisation & Side Hustles
You can also supplement your earnings through generating a small, incremental income stream. To do this, identify a valuable skill or look where you have a few hours a week that you can dedicate to earning extra cash, such as online tutoring or selling unused items. You could also start a side hustle, such as crafting and selling jewellery. Something as small as an extra £100 a month will add up and make a big difference over the course of a year.
Overall, making changes in the two main areas of smart spending (e.g. cost-per-wear) and efficient earning (e.g. automated savings) can help to make a big difference to your bank account. Although it may feel hard to get used to doing this at first, these habits will compound over time. The £50 that you can save on a subscription combined with the peace of mind from being reliably and accurately paid can lead to more significant long-term wealth.
