Ditching the lattes (and other ways to cut spending)
January is a gloomy month. You’re probably still paying off your festive season bills – built up from present-buying and partying. It’s also a long time between salary cheques. Chances are, you were paid just before Christmas and your bank account is looking pretty anaemic today.
How do you make sure this isn’t a regular occurrence? How to you ensure your finances are in tip-top shape so you will always have a little bit left at the end of the month? Or even have enough to build a savings pot?
It’s not easy: After six decades of rising property prices, the average house now costs 7.6x the average salary. That is coming down a little now, but the average price paid for a home is still around 250% higher than it was in 1997, while earnings are around 70% higher. That means millennials are spending around 3x as much on housing as the pre-war generation did at the same age (source: Resolution Foundation). However, there are ways to start building up a pot.
Ditch the pricy coffee run – While giving up avocado toast isn’t going to help you buy a house in Notting Hill, as Australian real estate mogul Tim Gurner famously suggested, it can help a bit. If you’re spending £10 a day on casual dining options, that’s £300 a month. £300 a month, invested over 10 years at a compound rate of 5% gives you a pot of £46,585 – that’s pretty close to a house deposit. That might just motivate you to take a packed lunch or a thermos flask.
Ditch the subscriptions – There has been a boom in subscription services in recent years, from Amazon Prime, to entertainment streaming services, such as Spotify. Most renew automatically and the companies involved can be pretty casual about price rises. Research from charity Citizens Advice found that the average person is paying out £50 a month in subscriptions they struggle to cancel. Go through your bank account statements, ditch the unwanted subscriptions and create an equivalent direct debit into a savings account.
Make the most of ‘nudge’ technology – Apps such as Revolut and Tandem have handy options where they round up all your purchases to the nearest pound and put the difference into a savings account. It is only 20p here or there, but it can mount up. Most will offer you the opportunity to super-charge it – so you can save 2x or 4x the amount.
Saving any cash you make from ‘side hussles’ can also help. Around a third of millennials have an additional source of income – that might be renting rooms out on Airbnb or offering their services on Task Rabbit. The good news with this is that you can make £1000 before you have to start paying tax on it. Save it and January won’t be as miserable next year.
Avoid expensive credit – You wouldn’t willingly pay an extra 20-30% for everything you buy, but this is what you do when you use expensive credit cards and then don’t pay them off. Even if you have as little as £500 saved, it’s £500 that you’re not borrowing at expensive rates should the roof fall in.
Even small sums can build up pretty quickly – £50 a month, with average investment returns of 5% a year, would have almost £3,500 in their savings after five years, while after 10 years this would have grown to almost £8,000. The temptation is to look at the size of the end goal – a housing deposit, or university fees and think that there’s no point, but every little really does help.