In a year of economic uncertainty, market volatility and higher inflation, it may not be surprising if you find yourself worrying about finances more than you usually would. We are having more discussions with clients about this and are helping them to bring more clarity and certainty to their financial lives. These concerns are widespread. The British Office for National Statistics (ONS) released the results of a study earlier this year that showed that 77% of adults in the UK reported feeling worried about the rising cost of living.
Moreover, this is evident across income levels with higher income earners not immune.
What is known is that taking control of your finances can reduce stress and improve your overall wellbeing. One positive way that you can tackle financial worries is by tracking your expenditure – will discuss why this approach can be so beneficial.
Why is money so stressful?
To understand why tracking your spending can be so good for your wellbeing, it might be helpful to first understand why money causes stress in the first place.
It can be distilled down to the confluence of three factors: one is that we live in economic societies where we need money, and more precisely, a certain amount of money, to maintain a required quality of life. Secondly, we increasingly live in an epoch of financial instability, meaning that there are rarely jobs and secure income for life, and as we re-enter a period of higher inflation, our costs may be increasing faster than our income. That leads to the third point, which is control. As with any other part of your life, if you don’t feel like you have control of these factors, that in itself can be a cause of money stress.
Financial instability can be mentally exhausting.
Furthermore, and more profoundly, money can make up part of your identity. Financial stability influences your sense that you can provide for your family or that you are financially independent, and successful. Conversely, financial insecurity can lead to a sense of shame, helplessness, loss of control, and decreased motivation.
So, how can tracking your expenses and budgeting help you?
Budgeting can help you to restore a sense of control
While many people dislike the idea of budgeting or tracking their spending, or find it boring, it can help you to take positive steps towards your goals, reduce stress, and restore a sense of control.
Taking a proactive approach to budgeting encourages you to make conscious decisions as you begin to identify what is uniquely important to you. It’s the same approach we take to financial planning –understanding what is truly important to you and focusing on your goals, makes it more likely that you’ll achieve them.
Tracking your spending can also help you to see your progress and ease anxiety.
Knowing where your money is going can boost your happiness. It can also uncover some of the less visible small expenses that accrue over time. You can pause and ask yourself if these discretionary purchases are more or less important than your goals. A small change in patterns of behaviour can have a large impact over time.
According to a study in the Journal of Consumer Psychology, you will tend to feel happier when you spend your discretionary money on:
Social experiences, such as holidays or get-togethers with friends or family
Buying time, such as hiring a cleaner, gardener, or someone to do your ironing
Other people, in the form of gifts or charity.
When you track your spending, you’ll start to think about the type of expenditure that brings you pleasure. You’ll begin to notice discrepancies between what you spend money on and what you truly value. This enables you to adjust your spending so you can allocate more money to those things that bring you joy.
5 tips for budgeting and tracking your expenses
So, if tracking your expenses can boost your wellbeing, what is the best way to go about creating a budget?
- Review your outgoings and see how you spend your money. Identify your major spending areas (such as housing, transportation, and food) and estimate your average monthly spending in each category.
- Set a budget. After you’ve identified how you tend to spend your money, it should be clearer when it comes to creating a realistic monthly budget for future spending and saving.
- Break down your budget. It can help to split your money into necessities (what you have to pay for), discretionary spending (that you could cut back if you needed to) and long-term goals (such as paying off debt and saving for the future).
- Start tracking. Record your spending in each category and how it matches your budget goals. This helps you to improve your habits and increase your sense of confidence and control.
- Give yourself a pat on the back. Reward yourself for taking steps to become financially secure – and don’t worry if it’s a slow process. Small is better than nothing!
These steps don’t have to be onerous. Most banks will have an app that will do a lot of the classifications of expenses for you. This is a great place to start. Then, as it focuses you on what is most important, reach out to us and we can incorporate these goals into a financial plan that can bring all aspects of your financial life together.
Being on top of your costs through budgeting can bring certainty and reduce money stress. Speaking with us can build upon that and put you on track to make the most of your current position and set you up to achieve what is most important for you in your life.