Everybody loves payday! You’ve been waiting for it, watching it get closer in the calendar until finally it arrives. In fact, you’re so excited that you go out and spend the whole lot. Then you’re back to ticking off days on the calendar. Does that sound like a familiar pay-day routine? Don’t panic! Loqbox’s simple guide explores how to manage money better.
How to manage money with a payday routine
Think of your pay day as long-term planning, not short-term gratification. Watching money drop into our account feels great, and the temptation is often to spend it as soon as possible on the things you’ve been waiting for all month. Maybe you’re dying to splash out on a meal or a new outfit, because you deserve it. (And you do!) But spending all of your money at once isn’t exactly how to manage money wisely.
But these tips aren’t about spoiling your fun. They’re about making sure you have a good foundation for your future, you’re set up to bounce back from any of life’s surprises, and when you do treat yourself you can do it without any nagging feelings of guilt - which are the real fun sponges!
7 tips for how to manage your money on payday
1. Set your goal
Sorting out your finances and learning how to improve money management is about setting a goal and sticking with it. You’ll be amazed how far you can go, even with little steps, when you just keep going. So set goals that light a fire in your heart. For example, do you want to save a deposit for your dream house, or do you need a travel fund for a trip around the world?
The more you believe in your goal, the more likely you are to stick with it. Sure, your goal can just be to manage money better, but try and find something more tangible. What’s the endgame? Improving your money management is about finding some financial freedom and putting yourself in the position to say “yes!” when opportunities arise.
2. Create a budget
Budgets don’t sound like fun, but when you’ve found the right one for you and it’s running smoothly every month, the beauty of it is that you don’t really have to think about it. And the rewards just build up in the background. There are tons of versions out there but you can read about some simple and effective budgets here.
One budget that we love is the 50/20/30 rule. It’s super simple. You just separate your post-tax income ‘pie’ into percentage slices. So, 50% is for everything you really need (your rent and bills), 20% to put towards your goal every month, and that leaves 30% goes towards those things you just want (clothes, dining out, entertainment).
The great thing about this budget is that because it works with percentages it doesn’t matter how much you earn, it makes sense proportionally. If your income increases, you can still stick with the same plan. It also lets you know that there is a piece of the payday pie that’s just for you to have fun with, without having to worry about whether you should!
3. Pay yourself first
A lot of understanding how to manage money better is about prioritising yourself over everything else. But it’s important to be clear about what we mean by that — your goal that you set in Tip 1 is what you should put first.
Switch up your mindset. Your goal is what you really, truly want. It is you! So when payday lands, put it first.
4. Direct Debits and standing orders are your best friends
Why risk the temptation of spending your pay packet on things you don’t really need, when you can take the whole thing out of your hands and get the robots to help — they’re consistent after all! Set Direct Debits and standing orders to come out of your account on payday, so your important payments are sorted before you even look at your balance.
It’s such a simple fix, but it works like a dream. When you’re planning your budget and setting your goal, you’ll have all the best intentions. But sticking with it, and keeping those things in focus becomes harder when you’ve got to the end of a long month of working hard. ‘Future you’ will thank ‘past you’ for setting things up to succeed, not fail!
5. Clear your debts
It’s tempting to just start saving as soon as possible. We’d all rather watch money pots grow rather than hand our hard-earned cash over to other people. But if you’ve got debt hanging around your neck, you might want to think about prioritising getting them paid before you start putting money towards your goals.
The reason is that interest that you pay against debts is likely to be much higher than interest you earn on savings. Clearing them can give your saving power a real boost and fast-track your objectives. Not all debt is bad, it’s often necessary. But if you have monthly repayments draining your cash, take a look at what could go and focus on that.
There are two ways of tackling your debts. One is the snowball approach, this is where you start sifting any smaller debts to free up your finances to start on the big ones. Whereas the avalanche approach focuses on getting the largest debt out of the way so you can mop up the rest. We like the avalanche method because it saves you the most money, but work out which suits you best.
6. Round up your spending
This is a ‘little and often’ approach to savings. Lots of things we buy are priced just below the nearest pound in order to make them seem less expensive than they really are. It’s an old retail trick that we all know, but somehow still works! The good news is you can use it to your advantage. When you buy something, send the rounded-up amount to your savings!
It’s amazing how well this can work, especially if you can automate it using your banking app. Every time you beep your contactless card, the rounded-up amount shoots straight into your savings and adds to your goal. There’s an old saying that if you take care of the pennies, the pounds save themselves. It’s true. And now you can do it digitally.
7. Grow your credit score
Your credit score summarises how creditworthy you appear to any lenders who check your credit report. Typically, you want your score to be higher, as that means you’re more creditworthy and therefore more likely to be accepted for a loan. It can also mean you get better interest rates for repayments. This can save you thousands in the long term!
So, if you’re saving towards a goal, your pay-day routine will thank you for having smaller monthly payments. That just gives you more cash to put into your savings.
The quickest way to boost your credit score is by kicking off your Loqbox membership and getting access to Loqbox Grow, Loqbox Save and Loqbox Rent for just £2.50 a week. You could see your credit score grow by up to 300 points in the first three months using all of three products together.
Improvements to your credit score are not guaranteed.
So, is this really how I can improve my money management skills?
Yes! Improving your money management skills is an ongoing journey that starts with a well-structured pay-day routine. By setting goals, creating a budget, automating your payments, and making the little things count, you can make significant steps towards your financial goals. The key is to stick with it! So be realistic and give yourself a chance.