Earlier this year I decided to go part time at work and use that time to see how I might branch out into more than teaching. The opportunity looked like it would arise and it was now or never. This would obviously have financial implications and I wanted to know that I wasn’t going to struggle or regret having made the decision. This is an outline of the things I did to prepare.
Calculate your monthly spending
This may sound ridiculously obvious but I’m surprised by the WAY people do this. Let me be clear, totting up your spending in your head is not enough. This should be a paper exercise not an emotional one. The facts on paper (or web page if you’d rather) should be displayed in the form of monthly bank statements. How far you go back will vary depending on changes you’ve experienced. Just had a baby? Look at your spending before and after to get a real insight into how much you need. I was doing this through lockdown so obviously would not get a real reflection of my spending in a few months in which spending was limited due to external factors, so rather than going back say 4 months I went back 6. Then list your spending each month depending on category e.g. Grocery shopping, eating out, memberships, travel etc.. You may uncover some interesting facts. I was shocked by how much we were spending on a grocery shopping. Not the weekly visit, but all the visits in between, for the odd thing (which then inevitably turns into 8 things because you see them on offer).
Make a list of what makes you happy
It’s important to do this before you start analysing how you amend your spending. For instance, if meeting friends makes you happy then you don’t want to start culling all of your meals/drinks out. Maybe think about whether you prefer 1-2-1 meals with close friends over large gatherings where you don’t get to have a meaningful conversation with anyone and prioritise these meals over drinks. It’s about maximising your happiness with things you do. Or if you love to read and see you’re not spending anything in that area then get an Audible membership which allows you to listen to books. The key here is to get clear about what makes you happy. Because that is where your spending should be going right? It’s also about identifying any areas where you’re spending your money but not getting a great deal of happiness. For example, the thrill of a new Zara top, for me doesn’t compare to the happiness of checking out a new restaurant, yet I seem to be going to the same restaurants (pre-covid, as my receipts show me and buying stuff form Zara I don’t need, go figure.)
The key here is to get clear about what makes you happy. Because that is where your spending should be going right?
Calculate your pay per hour.
For instance say you work 40 hours a week. Do not look at your salary and think I’ll divide it by the 52 weeks and then number of hours worked. This is false. Why? because nearly a third of your salary is going out to the tax man, pensions, NI etc.. So I recommend you take that out first. For instance imagine I earn £30,000 per annum which is now the average in the UK and work 40 hours a week. 30,000/3 x 2 is actually what I’m left with. £20,000. Then I divide that by 52 and then 40 to give me £9.60. For every hour worked I end up with £9.60 in my pocket. This will make you start seeing things a lot differently. Having dinner with someone who doesn’t bring you joy? You sure you want to give up 4 hours of your life? (yeah the dinner may be 2 hours but then your half of the bill might be another 2). Like but don’t love that dress? Oh its on sale, still is it worth 5 hours of your life? You’ll notice you get a lot more pickier about what you spend money on.
Do not look at your salary and think I’ll divide it by the 52 weeks and then number of hours worked.
Ask yourself what is adding value
Look at your spending does it align with the things that add value to your life and make you happy? For instance, are you actually using that gym membership, or reading the magazine you have subscribed to? Perhaps pause some memberships and see if you notice their lack in your life?
Ask yourself what can be swapped out either for cheaper alternatives or alternatives that bring you more joy
For me it was the grocery shop, we switched from Tesco to Aldi and allowed ourselves to go to Tesco only in emergencies because it is closer to home. The great thing was not that we were buying less food as such but the smaller variety in Aldi meant we were going off script (or grocery list) a lot less. Some of my friends have switched to online grocery shopping for this very reason, so that they are not tempted by the bargains in the aisles. I also switched some of my memberships, I replaced my Masterclass membership which I’d had for a year, with Harvard Business Review, for a change and because I enjoy reading it. We then slashed some of tv subscriptions so that we spend more time reading rather than hypnotised by bad tv.
Check your contracts
Phone, Gas, electricity, water, television service the lot. The chances are if you have been with a company for a while you are not getting the best deal. They are relying on you to be complacent about asking for a better deal so don’t let them get away with it. I hate this part of money management I really do. So I assign 3 hours to it. In those three hours I’m going to call all the companies and see what I can do in terms of reducing my costs, after that I call it a day.
Calculate what you can live on
Taking all of the above into consideration calculate how many hours of work you can live on and whether you need to be working full time in the job that you are in. Could you make that money doing something else? You may not be able to make any changes straight away such as go part time or switch jobs, but you will be clear about what it will take to change and that is powerful to identify when you are ready to switch things up.
Some good reading when looking at saving money
Mr Money Mustache This is a great blog with some sound practical advice and also takes you on his money saving journey.
The Minimalists Less Marie Kondo and more sage life advice. These are great at giving a little perspective about the things that are important.
David Bach’s Smart Women Finish Rich – has some exercises in it that make you do some digging around in your finance to get a clearer picture of where you stand.