4 Fixed Income Saving Strategies - Combine to win!​

First off, making a proper, grown-up budget’s easier than it looks. It’s just a question of making sure every pound pays its way. A “zero-sum” (or “zero-based”) budget might sound weird and a little depressing, but it’s a strong tool for taking control of your cash. Here’s how it works:

Income: Every penny of your income has to go somewhere, right? So let’s work out where. We’ll start with calculating exactly how much money we’re playing with. If you’re used to claiming tax refunds (and you really should be), this is basic stuff for you. If not, it’s easy to pick up. Simply add up all the cash you’ve got coming in, wherever it’s coming from. That’s step 1 done already!

Expenses: Again, if you’re an old hand with tax refunds you’re on solid ground here. Start with the stuff you really can’t change, like your rent or mortgage payments. Once those are accounted for, look at the expenses you can control more easily. You don’t have to make any major life decisions just yet. Just track what you’re spending for now and we’ll worry about tweaking it later.

Everything else: Here’s the real trick to zero-based budgeting. With any luck, there’s still some cash unaccounted for in your calculations. We’re talking about the money you’re saving, investing – or even just giving away. Every penny goes somewhere, even if you’re keeping it. List all that stuff here for a full picture of your finances.

This is a nice rule of thumb that fits in well with your zero-sum budgeting. It’s important to break your spending down into a few basic types, so you can take a tighter grip on it. The 50/30/20 system is a simple way of organising your day-to-day expenses. For each cost you’re paying, slot it into one of these categories to see how you measure up:

Needs

Your 50% section. Half of your total income should be allocated to essential living costs and purchases like:

• Mortgage or rent
• Phone, utility and basic internet bills (but see the next section for a note about fast connections).
• Any debts you’re paying off in instalments.
• Household expenses like furnishings.
• Any upkeep, repair or other unavoidable maintenance costs.
• Food (we’re talking about basic sustenance here, not treats and meals out).

Wants

Drop 30% of your income into this category. Here’s the stuff that you can do without, but wouldn’t necessarily want to skip all the time. Examples include:

• Eating out or ordering food in.
• Trips to the pub or other venues.
• Any cool little gadgets and bits of tech you buy.
• Subscription services like Netflix, Amazon, Spotify and so on.
• Gym memberships. It turns out you can actually get fit for free if you put your mind to it. Stop driving 30 minutes to run on a treadmill for 25!
• Think about your internet deal here. If it’s faster than you actually need, you could probably stand to change to a cheaper package.

Savings

Here’s where the remaining 20% of your income goes. You’ve got a ton of options for what to do with your savings – enough for a whole article of its own, in fact. For the moment, though, how you divide your spare cash into short and long term savings will depend on your situation and needs. One thing that’s worth thinking about, though, is how quickly you might need access to your money. Dipping into your savings to cover an emergency bill is a lot easier if you’ve got some cash in an instant access savings account, for instance. You don’t need to put all your eggs in one basket, but making sure you can get your hands on a chunk of your savings in a hurry is a solid move.

Time to flip the script on your zero-based budget. When you’re splitting sections of your fixed income into their various slots, it’s easy to fall into the trap of leaving savings till last. When you do that, you’re actually forgetting to “pay” yourself – and not taking your savings nearly seriously enough.

Try this little trick instead. When you’re sorting out your expenses, tackle your needs first. Remember, that’s 50% of your income and it’s stuff you can’t live without. Once that’s taken care of, skip your wants for now and move straight on to savings. When you save money, you’re literally investing in your own future. With your savings in the bag you can see what’s left over to cover your wants list. You’ll probably find it a lot easier to stick to your 20% savings target this way, and that’s the secret to making every payday meaningful.

This is an updated version of a money management trick that’s been around forever. Back in “the old days” when pretty much everyone was working cash in hand, people would physically split their income into separate envelopes – one for bills, one for spending and one to save. Is that sounding familiar already? Once you’d tucked money into an envelope, you could use it as necessary for its specified purpose. However – and this is important – you couldn’t move it from one envelope to another except in emergencies.

Now, no one’s suggesting that you empty out your bank accounts and start buying envelopes. There’s a modern twist on the same basic idea, though.

Here's what to do:

• Have your income paid into a standard current account. To keep things simple, we’ll think of this account as your “needs” envelope. All your essential payments will be coming out of this account, adding up to the 50% of your total income you’ve budgeted for.
• Now, set up an automatic bank transfer to regularly pay 20% of your income into a separate savings “envelope” (remember, we’re doing savings before wants now). Depending on how you’re set up, this might be a savings account, an ISA or some other kind of investment.
• With your needs and savings handled, your remaining 30% can go on the fun stuff. Again, though, you want to keep everything separate so set up another transfer to a “wants” account. Since you’ve already shored up your savings and paid out your essential costs for the month, feel free to go nuts with this with a clear conscience. You’ve earned it!

Once you get comfortable with all this, you can even take things a step further. You could open separate accounts for different kinds of expenses, for instance, or explore your savings options a little further. Make sure you keep your eyes open for the best deals, though. You can often get some pretty good rewards for opening accounts with a new bank, so shop around before diving in.

The main thing to remember is that you’ll get the best out of “money hacks” like these by combining them. Once you’ve got the hang of making and sticking zero-sum budgets, you’ll find the rest of it falls together pretty easily. The main thing is that you’ll have taken a firmer grip on the reins of your finances – and that’s the secret to steering them in the right direction.

Keep checking back here for more money tips and updates. We’re experts at saving you cash and we’re always here to help. That’s the reason why you’re better off with RIFT.