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Many of us will have made "better budgeting" a top New Year's resolution, but whether or not that resolve has stuck, it can't be denied that budgeting really can be key to getting your finances in order – and being proactive is an essential component.
A research study by Royal London has found that actively monitoring how much you're spending can make all the difference to your budgeting success, and it could even help you change your spending behaviour to get you into better habits.
In the study, a sample of Royal London customers were given smartphone budgeting apps or a pen and paper equivalent, where they kept track of their spending over a three-month period. Participants were questioned about their finances at the start of the project and again at the end of the three months to see whether closer monitoring of their finances had influenced their spending decisions.
It was found that, while the approach wasn't for everyone – some people weren't interested and others gave up during the study – there were some who persevered, with a quarter of those initially contacted keeping up the challenge for the full three-month period.
Several reported quite striking changes as a result: thanks to monitoring their spending habits in such close detail, many actively changed what they were spending their money on every day, with 49% of those who kept up with the study saying that using a budgeting method was helpful in monitoring what they spent.
Some particularly striking changes included participants starting to shop in cheaper supermarkets, cycling to work instead of taking the bus, and going through bank statements to identify old direct debits and standing orders that had never been cancelled.
Others even gave up smoking once they realised how much their habit was costing them, and one participant went so far as to buy a home coffee machine instead of spending huge amounts each week at coffee shops. Others stopped buying on impulse and saved the money instead – one participant opened an online savings account for this very purpose – while 26% of participants said budgeting meant they were more motivated to save more for unexpected expenses at the end of the project.
"At this time of year, many people will be dreading the arrival of the December credit card bill and wondering how they can make ends meet," said Royal London's director of policy Steve Webb. "What was interesting about our research project was the way in which the simple act of monitoring what you spend every day or week made some people more aware and put them more in control of their finances.
"They were then able to make their own choices about priorities. Monitoring spending with an app or even a notebook will not work for everyone, but a number of the participants in our research were clear that it had helped them to get a grip on their finances."
You don't need an all-singing all-dancing app to take control of your finances, however. Indeed, 73% said that simply noting down their spending with pen and paper was good or very good at encouraging them to interact with their finances, showing that low-tech budgeting can have just as much of an impact.
So what are you waiting for? Whether you've got your smartphone by your side or a good old fashioned notebook, start keeping track of your spending and see if you can get into better budgeting habits as a result. You may even have money left over for the odd treat…
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