Studies show that people spend a lot more money during the summer months than in the other times of the year. This is understandable as the days are longer and weather better, which leads to more fun activities to do being available. However, if the spending is not kept in check this can easily wreck your budget and derail any plans for financial independence.
This year’s summer has been impressive so far across the world, with temperature regularly topping 30 degrees Celsius in the UK with not a drop of rain in sight for weeks. Here are a few top tips to keep your finances on track.
Track expenses and stick to a budget
To achieve financial independence it is crucial to know how much you spend in an average month, which enables you to get an accurate picture of your annual expenses for determining how much net worth you need. There are many tools for tracking expenses like YNAB or Mint for US residents but I prefer to use spreadsheets as these can be tailored to produce specific outputs/ calculations.
Once you know the expenses you can create a budget for forecasting future expenditure. This can include an allocation for known unknowns which are expenses which occur every year but are not regular. These are not bills but for things such as holidays, car maintenance, repairs and presents. They should not be swept under the carpet or they will cause havoc to finances if you do not have an emergency fund. Staying within the budget should be done to avoid compromising other objectives.
Personally I do not set aside a specific amount for these monthly. Instead, I aim to invest as much as possible every month to ensure the cash is working as hard as possible and then directly spend on the expense as soon as it comes up. This ensures that there is a minimum amount of cash lying idle at all times. When an urgent unexpected expense comes this can be quickly dealt with by deploying and emergency fund which should be rarely used.
Plan for the future
According to Benjamin Franklin “Failing to plan is planning to fail”. This is entirely true when dealing with summer expenses. Advance bookings for holiday flights, trains, parking, car hire, foreign currency, accommodation usually saves a lot of money. Researching a destination thoroughly before you land also helps to avoid falling into tourist traps which are common as highest expenditure is ofter during the first 24 hours of a holiday.
I avoid package holidays where you can be ripped off along with other gullible tourists but plan things individually which provides more control and less cost. It is also important to get good travel insurance. Cheapest is not always the best here so it is crucial to read the terms and conditions.
There are also several activities which can be done for free or without spending much. I suggest having a few weekends like this in a month and then actually spending accordingly on what you value when the time comes. According to Noddle, the credit service report provider, British people typically overspend by £154 a month during summer. Overspending typically kicks off in April/May and just ramps up all the way until the end of the year, with may using credit and dipping into hard earned savings as a form of funding.
The scale of the problem is illustrated by the chart above and ONS statistics showing that household spending is now more than income for the first time since 1988. This is through a combination of reducing savings levels and taking on more debt where summer spending can be a big factor.
These top tips, along with good discipline can help to ensure staying within a prescribed budget and avoiding short term lifestyle creep which can lead to long term financial impacts.
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