In 1986 Tom Cruise made a film called ‘Jerry Maguire’. Even if you haven’t seen the film you may still be familiar with the film’s most famous quotation, ‘Show me the money’. It is more often used today if you want to know if someone is being serious. But, if you’ve ever checked your bank balance just a few days before pay day and wondered where all the money has gone, then you may have felt like having your own ‘Jerry Maguire’ moment with your Bank Manager. In which case, maybe now is the time to really look at where all your money really goes.
We all work hard to achieve the money that arrives in the bank account each month. However, unless you have undertaken some prudent financial planning and have drawn up a monthly budget, you are unlikely to have too much in the way of ‘surplus cash’ by the time the next pay day finally arrives. That can be the case no matter how large or small the income and, in my experience, the more money a client perceives they have, the worse the situation. And that can be a problem when you need to start putting money aside to secure your financial future.
The Office of National Statistics (ONS) reported that the average UK disposable income in 2016 was £27,300 after tax. That means that the average person in the UK has £2,275pm to spend. So, let’s work with this number and look at where the average person spends their money.
Starting with the essentials, the largest item of expenditure is usually your mortgage or rental costs. According to The Money Advice Service (MAS), the average monthly mortgage payment in 2016/17 was £671. That is slightly less than the average rental payment which, according to the HomeLet rental Index was £763pm last year (excluding London). So, we are spending between 29% to 34% of household income just keeping a roof over our heads.
Then there are the associated costs of running a home such as Council Tax, Gas, Electric and Water rates. The Department for Communities and Local Government report that average Band D Council tax paid in the UK is £140pm and MAS report that the average Gas, Electric + Water bills amount to £128pm. So, that’s a combined cost of £268 to pay your household utility bills, or a further 12% of net pay.
And what about food? Data from ONS states that the average UK household spends £3,150pa on groceries and £1,600pa on restaurants and takeaways every year. As a result, in 2018 UK households spent 17% of their total budgets on food and non-alcoholic drinks. Another 3% of income went on alcoholic drinks.
If we add up what we have spent so far then, it comes to 64% of our take home pay, or £1,456, leaving £819pm.
Then there is the phone, TV and internet costs, clothing, travel costs and any car finance you may have. Ofcom report that we spend £17pm on broadband and £27pm on our Mobile phone. As for car running costs, a Kwikfit survery reported that we spend an average of £162pm and a further £226pm if we factor in any car finance arrangements. So that’s another £432pm gone. With £105pm spent on clothing (source. ONS) that leaves £282pm, or 12% left over for you.
So, what haven’t we included? Leisure time, hobbies, holidays, Christmas and birthdays and of course the really big one – putting some money aside to secure your financial future. Yes, I’m talking about funding for your pension but also putting some money aside ‘in case of need’ and funding the insurance policies that are designed to ensure all the above can still happen if your income suddenly stops.
In reality, unless you have drawn up your own monthly budget plan and have religiously stuck to it, you will most likely find that any surplus money (or should I say, ‘money with no specified purpose’) will just get absorbed during the month and there will be little or nothing left by the time the next pay day arrives.
In the above examples I’ve worked on average household expenditure and net disposable income. Everyone’s finances are different, and we all have different priorities for how we spend our money. However, without a monthly budget plan it is hard to see how much should be left over at the end of the month. And this ‘surplus’ is the real money that is yours, to do with as you please. You have flexibility as to how you use it and owe it to yourself to get this money working for you.
By talking to a Financial Adviser and undertaking some financial planning you may also find that you can save money on some of those big items of expenditure. Getting you a better mortgage rate, rebroking insurance contracts and restructuring loans could save you thousands of pounds. There are also websites such a U-Switch that could reduce some of your Utility bills as well.
When you make an appointment to come and see us, the Monthly Budget Plan will be one of the first items we will ask you to complete. From this we can start to put together your own financial plan. ‘Show Me the Money’ and we will help you secure your financial future. Get in touch today.