How do you manage changing finances as an adult
TL;DR
Keeping a budget spreadsheet is very handy to know where your money goes each month
Rationalising where the money goes is a lot easier with a budget spreadsheet
I have a free digital download for a simple budget spreadsheet on this post(under the title That’s it!)
If you’re reading this, then it’s a sign to get your downloaded budget spreadsheet and start mapping those finances
Main post
Over the last 5 years since becoming employed, I have had salary changes nearly yearly. Most of them have been to coincide with the inflation increase that occurs in the country. So, whilst I technically had a pay increase, it was to make sure that I am able to afford the increasing cost of the services and things I already use in my life. But as an adult, there comes a point in time, where your money habits change, and you need to reprioritise the spending. So, how are you supposed to manage the changing finances?
Note: This is not financial advice since I am not a qualified expert, but I am sharing how I have handled changing finances.
Keep a budget
I am very happy to sound like a weirdo, but keeping a budget spreadsheet is so handy. It’s not to limit your spending, but if you know how much you spend on things to keep you and your life going, then when your finances fluctuate, you can have a better grasp on how to adjust. I have been keeping a budget spreadsheet since I started working, and the structure is still the same. However, since my salary has changed over the years, I can also see where my money has been going with those changes, thanks to the spreadsheet.
Having this awareness has meant that I have identified flaws in my spending. Over the last 5 years, my salary has increased by £14k, and yet I am still putting away £50 per month into my Stocks and Shares ISA (S&S ISA). I pay more for my monthly exercise classes, than I do into my investments. Which is counterintuitive, because if working out contributes to the longevity of my life, then I will need money to spend in that later stage of my life, where I won’t have an income.
Identify what can change and what must stay
With salary changes have occurred for me, I have known a few months in advanced before my finances change. This is either because work has informed me that my salary will change, or my bank informs me that I am approaching the end of my direct debit term. So, with the notice being given to me, I check on my budget spreadsheet where I can make changes in my spending habits.
Hypothetically, if my salary was reducing or I had a direct debit that was increasing, I would check the budget spreadsheet for where I can cut spending costs. This could only be on non-essential things, such as eating out, social ventures that involve driving and maybe even reducing how much I put away into savings. However, in my current case, I have actually finished paying off my car loan, so there is an extra £100 that isn’t being spent elsewhere.
Rationalise
Deciding on where I put that money depends on what is the priority. I do currently have a credit card that has 0% interest until Aug 2027, my S&S ISA which I can increase my contributions to, my LISA for my house deposit, or another savings account.
My rationale is that since there is still a year till my credit card balance should be manageable (currently a £4k balance), there is still time to pay that amount down, without sacrificing too much at the moment.
My LISA has a £4k yearly limit that I can deposit, and there is still time to make affordable contributions to the account and reach the limit by the end of the tax year.
My other savings account is currently at £0 but does have a £100 direct debit normally (as long as I don’t choose to empty that account for some reason).
And then my S&S ISA has a £50 deposit every month. My account has grown considerably since starting due to compounding interest. With a higher deposit amount, I can take more advantage of the interest. I am still reasonably young, so this will work in my favour, even by just doubling my monthly contribution. But with the £100, I could triple it. To be conscious of this change to my finances, it’s good for the first few months to leave myself a buffer. Adulting likes to be unpredictable so, it’s possible my maths might be off. So, I would double my monthly contributions to the ISA and leave the other £50 just in case.
Hypothetical loss of money
If this was the opposite way around, and I was losing an extra £100 to a direct debit of some sort, I would rationalise the same. However, in my current budget, I do not spend more than £100 on one thing that is non-essential, so I would have to reduce multiple things by a fraction. For example, exercise classes, one class is pay as you go, and it’s £14 per class. To reduce spending, I can go twice a month rather than once a week, or less. I can reduce how much I spend on my groceries by about £20 per month, but fuel is dependant on how much I need to travel that month, so that’s a difficult one to change. I also can spend less on treats like food when out with friends and getting my nails done. And if that’s still not enough, I sacrifice putting away money in savings. I do hold different savings accounts for different things like my car, an emergency fund, a holiday fund and a rainy-day fund. My car and emergency fund are my highest priority, since cars are expensive to maintain, and emergencies are always good to be prepared for. But the other two are not a priority, especially when I don’t have any holidays planned, so I can pause their payments.
It’s certainly not easy managing your finances when they change regardless of whether its for the better or worse. Because ideally having more money is always better, and it’s never fun when you have to make certain cuts and sacrifices. But the main point when dealing with changing finances, is that having an awareness of what your spending already is like, will really help with the prioritising and rationalising parts of budgeting.
