How to take control of your money: It sounds boring but it’s actually liberating

Many of us treat our bank accounts like the tide. Money comes in, it eventually goes out and we don’t give it much thought beyond that.

If the bills get paid and we have a bit left over, we think we’re riding the waves just fine. Until a financial tsunami hits in the form of a redundancy, an illness, divorce or mounting debt forces us to confront our spending or simply our lack of even thinking about our spending.

These days it’s less likely to be a major event but the combined effects of rocketing power bills, inflation and the ongoing cost-of-living crisis have us feeling like we need to know where our money is going and where we can claw some of it back.

Budgeting is one of those things we know we should do but end up avoiding because it seems too hard, too boring or just plain miserable. “Make a budget and stick to it” is common enough financial advice but the problem is where do you start if the word budget makes you cringe?

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1. Making a budget is about freedom not restriction

For many of us, the first hurdle to making a budget is our resistance to the term. Budgeting feels like a punishment, like something that has to be done only when things go bad. We have failed to manage our spending or make enough money and now we have to cut out the fun things as a consequence. It has a frightening whiff of belt tightening and recessions. In reality, it’s less about restriction and more about freedom by finding out where your cash is going and redirecting it towards helping you do things you’d like to do. Like buying a house or having enough money to quit your job and start a business or travel for six months. It’s about future planning.

“You don’t need to be really frugal and cut back. Making a budget is simply taking control of your money,” according to Irish financial influencer and author Caz Mooney.

Mooney embarked on what she calls a “low-spend” year in order to cut credit card debt, save a deposit for a house and buy her young family’s freedom from an increasingly brutal rental market.

“It was just that we couldn’t afford the increases but there was nowhere available. If we had lost the place we were renting we were going to struggle to find somewhere to live and that frightened us a lot,” she says.

By seeing the new budget as a way of enhancing their life quality instead of reducing it, Mooney’s family was able to remain united on the budget.

The trick was to involve their two children, then aged eight and 10, by being transparent about their budget from the start and explaining it in an age-appropriate manner.

“We were worried about how they would take it but we made sure we put it in a positive light so we explained we were spending less this year but we were going to do more by going on adventures and spending more time with friends and family than we did before,” Mooney explains.

After making reassurances they would “still be getting birthday presents and not missing out on things”, Mooney says her children were excited by their budgeting project.

“Instead of going to the cinema, which can be a lazier way of looking at life, we gave them a list of fun things to do in the midlands where we live, they would just pick somewhere themselves and we would just go with a picnic and have a fun day out.”

By replacing expensive cinema trips with sleepovers, Come Dine with Me nights and board game tournaments, Mooney found not only was the family saving money but they were “making more memories”.

2. Knowing is half the battle

The second hurdle between many of us and financial empowerment is taking a good hard look at what we actually spend. We usually know how much is coming in because it’s easy to look over payslips and invoices but it’s a lot less fun going back over credit and debit card statements.

Seeing just how much overdraft fees, late payment fines and parking tickets have cost us is self-esteem napalm. We don’t want to see how much we have spent on takeaways or nights out or other things often seen as a waste because of the anticipated shame we feel. Such emotions often dictate how we manage money or, specifically, how we avoid managing it all.

In 2019, researchers from Harvard Business School and Columbia Business School examined the relationship between shame and financial hardship. They knew people in financial difficulty often felt shame but they wanted to investigate if this led to people making worse financial decisions – a financial shame spiral. They concluded that “feelings of shame can fuel counterproductive financial decisions through increased behavioural disengagement”.

Meaning if someone was more likely to feel shame about their financial state, they were more likely to avoid financial information (such as checking their bank balance or credit card statement). This meant the more likely they were to make financial decisions that would make things worse (going into overdraft, or making only the minimum payment on a card with crippling interest).

Having a clear picture of where money goes after income comes in is the first step to getting on top of things. The discomfort is temporary but the benefits from the knowledge you gain can be permanent.

It can be as simple as noticing frequent spends on takeaways because there’s never anything nice to eat in the fridge after a long night shift. Paying a bit for a grocery delivery service might be a cheaper and healthier option in the long run. Or making sure phone bills are paid on time via a direct debit on pay-day so those pesky late fees go towards your house deposit instead of the telco’s bottom line.

Start with the “bear bones” of your monthly costs, advises Mooney.

“Have a look at spending last month and write down all the bills and direct debits, the things you have to pay every month to live,” she says. “That alone really helps us, you would be surprised how many people have their head in the sand about what they actually pay for these things.”

This is where savings can be made

For example, if an introductory offer has expired and you can see the broadband bill has gone up, you now know to negotiate a new offer or to take your business elsewhere. Is paying extra money to a broadband company a financial goal for anyone? No. Send the savings into the holiday fund instead. Knowledge is power when it comes to budgeting.

You can track your spending by going over your statements with a highlighter and putting them on a spreadsheet or writing them down manually on paper (Mooney uses her newly released budget planner, which has worksheets). Or instead of tracking backwards, you can keep a spending diary for a month. Or use budgeting apps to input expenses in real time.

The Money Advice and Budgeting Service has a free budget-making tool online while the Competition and Consumer Protection Commission (CCPC) has a spending calculator, which helps to see how much regular buys add up over time.

For the truly lazy, you can try redirecting all payments from one card/account with a fintech or a bank with a good app that categorises your spending for you at the end of the month in a handy report.

3. It doesn’t have to be drastic

Sometimes extreme budgeting success stories can dominate headlines. Stories about people saving 70 per cent of their income to fund early retirement make great reads but they usually require savage cost cutting in practice. Reading about how watering the shampoo down can save a whopping 20c per wash would put anyone off budgeting.

In reality, making a budget or reducing a budget can happen as gradually as you like to avoid being locked into something too restrictive and ditching it all together. In fact, despite making drastic changes herself, Mooney says she would “never advocate a low-spend year for anyone”.

The only exceptions are people who have to save a large sum of money quickly for a time-sensitive reason, like paying down a high-interest debt or buying a house to get out of the rental market.

For the rest of us, Mooney suggests making incremental changes by focusing on just one thing per week. Week one is finding out how much you actually earn and how much you actually spend.

“The next week could be about cancelling subscriptions and direct debits you don’t actually need or maybe you have some app you haven’t used since 2020 or multiple streaming services,” she says.

“It’s important to remember that all of these apps and streams, you can get back instantly so don’t be afraid to cancel them. You can even get a discount if you do decide to go back.”

In the third week “you might look at everyday spending – it’s worth looking at the grocery shop and fuel. That’s where I was definitely overspending,” says Mooney.

Then it’s time to decide what kind of budget you would like to follow. Mooney is a zero-sum budgeter, meaning she spends all her income until the number is down to 0. But instead of racking up her credit card, her cash is directed to savings pots for things like holidays and sinking funds for future expenses like back to school and Christmas.

By planning ahead and having emergency funds to call upon for future expenses, Mooney says she’s reduced the need for a credit card. “I am my own insurance.”

In the end, budgeting doesn’t have to be about clipping coupons and freezing bread, instead it’s about knowing what you have and making empowered decisions to get your money to give you the things that will make you happiest.

As Mooney says – “give every cent a job”.