Many people search for ways to save money, most believe that the answer is simply to earn more money. By being more financially savvy with the income you do have, you may be able to save more money than you thought. Below are our Top 5 Tips for financial literacy.
Tip 1
Money management rule
This rule uses a pie to demonstrate your finances. The rule states that your pie should be cut into 3 slices. Slice 1 is your living slice, this should be 50% of your pie (or income). Slice 2 is 30% and should contain your savings and freedom money. The remaining 20% or slice 3 includes what is known as 'play' money.
Slice 1 - the living slice relates to mandatory expenses , or 'needs', but not including 'play' money.
Slice 2 - the savings and freedom slice should be there for any unexpected expenses you may have. Savings can be subcategorised between 'wants' and 'being prepared'. For example, a holiday is a want and a car repair is being prepared for a just in case situation. The freedom portion of this slice is to be invested; once it is created it has the ability to grow.
Slice 3 - the play slice is money that can be used freely, such as on entertainment, during the month. You have the chance to enjoy money earned.
Tip 2
Always keep savings. Savings should between 3 and 6 months worth of living expenses. These savings should be liquid and not invested. This money will be there for the eventuality of job loss or other major issues that could affect finances for a period of time.
There are many methods of saving, ranging from your piggy bank for loose change to fixed term ISAs. With this tip you want to avoid fixed term ISAs as they aren't liquid. The option many people use is a savings account with either their own bank or a separate account. When looking for a saving account, always check for the best interest rates.
Tip 3
Know where your money goes! A common mistake is not knowing where your money goes. Use budgeting tools to enable you to calculate expenses. This will allow you to know how much residual income you have each month.
Earlier this year Which.co.uk released an article on the best budgeting apps available at the time, this includes; ' Money Dashboard' 'MoneyHub' and 'Squirrel' . If further assistance is required, Citizens Advice are always available.
Tip 4
Pay yourself first! This may sound bizarre but is the number one rule of all financially savvy individuals. By following tip 3 and knowing your residual income, you can pay yourself this, leaving expenses money in the main pot.
Tip 5
Talk to others. There are many individuals who stay with some providers due to feeling 'secure' . However, by using tools such as switching tools and comparison sites you can find the best deal to suit you. By talking to others and alternative companies you can find new ways to save money.
This tip includes both discussing with others their experiences with companies (and then going back and doing the research on how this company would suit you), and looking on comparison sites for the best deal for you at the time. Ofgem (office of gas and electricity markets) released a list of approved comparison sites which include big names such as Uswitch and Money Supermarket.
There are many things you can do in order to save money without changing your income. These 5 tips are just to get you started. Small changes can make a big difference without much effort, meaning you might see the impact within a short space of time