Categorisation is key
Broadly, your spending can be placed in either of two categories:
- needs (non-discretionary) – rent, mortgage and other debt repayments, food, utilities etc
- wants (discretionary) – eating out, travel, new clothes etc
When making spending decisions it’s a good idea to keep these categories in mind. Accounting for your needs before wants can be a way to start cutting back your spending.
It can also be helpful to narrow down your spending a bit more. It’s up to you how you categorise, but these may be helpful ideas:
- going out
Total up your spending
Looking back over your statements for the last three months, total the amount you’ve spent in each of the categories. You can then divide this amount by three to give you an idea of how much you’re spending in each category on average a month.
Tip: Try to factor in any irregular costs that may not have occurred within that three months, such as TV licence renewal, or car insurance.
Consider where to make changes
Are you comfortable with these average amounts? Are you spending too much on the weekend and having to scrimp during the week? Could you be saving more if you cut back in certain areas?
You may find that cutting back on some things is easier than others. For example, it will likely be easier to spend less at the supermarket than reduce your rent, or mortgage. But that doesn’t mean you can’t make plans to reduce some of your larger costs over time if you feel you need to. Look at things like your energy, phone and broadband bills to make sure you’ve got a competitive deal. If you don’t, it may be worthwhile switching to another provider.