5 Reorganising and reprioritising your spending
There’s a major step you can take to improve your finances by addressing your regular spending and seeing if there are sensible changes to make.
Try the challenge in this next activity.
Activity _unit2.5.1 Activity 3: The £500 challenge
£500 goes some way to building up that rainy-day fund we looked at in the previous section. And if you manage to put away an extra £500 a year you’ll find yourself with a helpful lump sum in a few years’ time.
Or you can put it into your pension. An annual investment of £500 will grow close to an additional £25,000 after (for example) 25 years, assuming a constant rate of return on investments in the fund of 5% per annum. This ignores any tax relief you would get on these contributions or any matching contributions from an employer.
So your challenge is how would you go about saving £500 a year from your current spending?
First of all, we’d suggest making sure you’re getting the best deal possible on everything from your gas and electricity bills to your credit card debts. Make a note of all the money you have to pay out every month and use price comparison sites to look for better deals.
You might want to look at the tips for cutting energy costs provided by the Energy Saving Trust [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] .
Then take a look at your day-to-day spending. Here are some suggestions
- Cut out a couple of coffee shop visits per week. A cappuccino costs around £3.50 so you could find yourself saving some £350 by the end of the year if you just cut out two takeaway coffees a week
- If you eat lunch away from home, make your own meal. A sandwich from a leading high street chain costs around £4 so you could save £20 over the course of a week. Even allowing for the cost of your home-made lunches the result is likely to mean savings in excess of £500 a year.
- Cancel any subscriptions you don’t use very often – perhaps Netflix or the gym?
Go through all your daily and weekly out-of-pocket expenses. Ask yourself: do I need it and, if so, can I get it more cheaply?
And of course, you don’t have to stop at saving £500 a year. If you’re lucky enough to be able to make bigger savings, then go for it! Remember it’s never too late to be a smarter shopper and save money.