Working out how to streamline your home finances can be a daunting task, direct debits coming out of several accounts at different periods of the month is a financial nightmare. One minute you think there is a couple of hundred pounds left, only to wake up another day to find getting to the end of the month is going to be a lot more difficult than anticipated.
Using a prepaid account can really help to keep tighter control of your finances, by separating your bill money into a separate account on payday what is left in your everyday current account, you know exactly what is yours to spend for the month, eliminating the chance of overstretching. This is often referred to as the jam jar approach.
Before you start – draw up a budget
In order for the jam jar method to work you need to know exactly how much money you have coming in and where it is going each week or month. Using a budget planner really helps to give you a clear picture of where your money is going.
You now need to sit down and consider your spending habits carefully, deciding which are the “needs”, and which are the “wants”.
- Make a list of your needs – essentials such as rent, mortgage, gas and electricity, food shopping
- Once the basics are taken care of, look at your wants. This could be nights out and hobbies, or longer term goals such as saving for Christmas or clearing debts.
- If you can’t afford all your wants then it is time to start thinking about where you can start cutting costs on other things
- Imagine a jug filled with water that represents your monthly wages
- Now imagine empty jars that represent your individual monthly bills, and decide how much money to put in each month.
Separating your money
When I first entered the world of employment I used to have an envelope for each of the bills I needed to pay. I moved out very young and had to get to grips with my finances extremely quickly if I wasn’t going to be going back home with my tail between my legs as my mother had predicted!
To have your monthly budget split up into envelopes isn’t very practical in this day and age. Not only is it getting less and less convenient to pay in cash, you also miss out on the extra discounts suppliers often offer for paying by direct debit, not to mention, in a security sense, it’s not a very safe and secure option. This is where opening an account specifically to pay your bills can be really helpful.
Opening a new bank account generally has a dip of a couple of points on your credit file. If it is a joint account and the other person has a poor credit score, you must be aware that their poor history can have effect on your own credit score, and every credit check you have from then on would show this new account.
To avoid this all together, open a prepaid account. There are no credit checks so nothing appears on your credit file. Some of the better ones come with the same functionality as a high street account, meaning you still have access to direct debits and standing orders as well as one off transfers.
Put all your bill money into your prepaid account and set your direct debits and standing orders to go out from that account instead. You will find it much easier to manage your money. It keeps you in full control rather than leaving things to chance over the month.
Teach kids how to manage money
As there are no credit checks on many prepaid accounts it is much easier to add extra card holders. Another way of making great use of one is as an introducer bank account for teenagers. As long they are over 13 years of age they are eligible to have a card in their name, under the account of a verified adult.
Teach them the basics of managing money, as well as being able to see what they are spending your money on! It also goes without saying, in this day and age it is safer to have your money in an account rather than carry cash about.
What do you use your prepaid account for? We’d love to hear from you, please leave comments below.