Even though we’re supposed to go and spend up large to stimulate the economy, I’m not going anywhere near that. I’m no longer getting paid anywhere near what I used to, so I’m doing what I should have started years ago – I’m managing my money.
To begin with I consulted a company of finance brokers. A financial advisor arranged income protection insurance and a pension for me, and probably the most useful thing he did was help me to set up a budget and track my income and expenditure.
I was able to understand the major components of my finances, and from this I developed my own budgeting system. But there are plenty of ready-made applications available, some of them free. I was able to identify what I actually spent, from which I could set realistic limits. It also let me keep track of what I spent. That way, I was able stop spending when I reached my limit.
I have also restructured my bank accounts into on call savings accounts (or interest bearing account) and current accounts. I needed to see clearly what money I had, for different purposes. I keep one interest bearing account for tax money (I’m self employed), and one for my personal savings. That way I wouldn’t unintentionally spend my tax money.
And I have two current accounts – one for direct debits and automatic payments, to which I transfer just enough to pay everything off each month, and the other with a small overdraft which I keep at near zero dollars. The small amount of overdraft interest is the cost of the convenience of not having to move money in and out of my interest bearing accounts. This lets me keep enough in them to enjoy a higher rate of interest.
And finally, I try to take advantage of best rate savings accounts for the bulk of my savings. Banks are offering all sorts of interest bearing accounts, such as fixed term, or ones where the interest rate is high if you don’t make any withdrawals in the month.
In addition to this, I try to avoid getting into debt. I pay off my credit card in full each month, as I’m not prepared to pay the ludicrously high interest rate that credit cards charge. My approach to using the card for purchases is that, if I can’t afford to buy the thing without the card, I certainly can’t afford it with the card. In fact, the only reason I use a credit card is that I get a 1% rebate on my turnover, in the form of credit once a year. It pays off the annual fee and gives me another couple of hundred dollars.