Friday Finance: Long, Lean January

January is often a tough month financially.  Not only are we likely to have  overspent on Christmas and possibly overindulged in the post Christmas sales, we are also likely to have been paid early in December which means it can be up to 6 weeks between your December pay packet and its next instalment in January. To top it off British Tax returns have to be filed and paid for by 31 January.

In a previous life when I was a High Street banker (BTW the guys that lost our money in 07/08 were primarily investment bankers) it was evident that lots of people were skint in January.Earn MoreThis weekend, January 15th, with more than a fortnight to go before month-end might just be the point where we feel the financial pinch that causes January to feel like a long lean month.  If you have no savings to draw upon or are trying hard to avoid dipping into them for everyday expenditure there are essentially 4 levers you can pull when cash flow is tight: Earn more, Spend less, Pay later or Negotiate borrowing, or ESPN (nothing to do with the Sports Channel).

If you are able to pull 2 or more of these levers at the same time even small changes can make a big difference in the short term.  For example, increasing income by £100, and decreasing expenditure by £50 whilst deferring payments of say £75 has the cumulative effect of an extra £225 to play with in the short term.  So let’s look at each in turn.

Earn More

Obviously if we can do this most of us will be doing it already, whether by doing some overtime or taking on extra shifts or covering for colleagues.  But many of us don’t have this option before us.  Unless we take on a paper round…  And that might look bad.  And rob young people of potential employment. So what else might we do?

Return Stuff: Strictly speaking this is not income; it is in fact reducing prior expenditure. Nonetheless, if one of the reasons you’re feeling skint is an overindulgence in the post-Christmas sales returning some stuff is one way of redressing the balance, your bank balance that is. See what I did there…..? It’s one more reason why you should always keep your receipts.

Sell Stuff: We can also sell stuff.  Unwanted Christmas presents? Overfull closet? That’s what eBay is for…  You get a win-win situation.  You declutter and increase income at the same time. Just make sure you don’t sell anything you later wish you’d kept.

Rob a Bank (sort of): and not with a balaclava! Many new Bank accounts offer a welcome gift for new account holders who switch to them, some up to £100.  Why not improve your banking and your cash flow at the same time?

spend-lessSpend Less

This one is pretty obvious, but often difficult to do.  After all, if it weren’t difficult there wouldn’t be so many of us feeling the pinch in January.  So how to do it?

Go Cold Turkey: One radical and effective way of reducing expenditure is to stop spending altogether. Go cold turkey for the next two weeks on a financial de-tox. It will be hard to do but an interesting exercise, I guarantee.  Your direct debits and standing orders happen as normal but apart from that you determine not to spend a penny for the next fortnight.  If you are already skint, this might well be your only viable option.

Prioritise Spending: Cold turkey will be too radical or impractical for many.  After all, you will probably need to buy food at some point in the next fortnight.  Travel expenditure, especially for work,  may be similarly non-negotiable.  In which case you may wish to go for a less radical approach.  Figure out what is absolutely essential expenditure and spend only that.

Use paper not plastic: It is argued that we spend about 1/3 less if we use paper money only rather than plastic. Apparently, we have a more instinctive grasp of how much we’ve spent and how much we have left when we use cash.  We don’t have the same perception when we use debit cards.  So one way forward would be to withdraw whatever money you have left to live on for the next fortnight and live on that. When it’s done it’s done.Empty pockets

Pay Later

If money is tight try deferring payment of some of your bills. This is clearly NOT a long term strategy.  It doesn’t reduce expenditure or indebtedness but it does reschedule it, thus giving you additional time to get your house in order.  This is the crucial thing.  If you simply reschedule without bothering to get your house in order then you may  make your financial situation worse in the long term.

If you pay bills by direct debit you might be able to arrange a later payment date.  So if your direct debit normally comes out on the 25th, before your next pay packet, you might be able to negotiate a new pay date to, say, the 5th of the month, after you get paid.

These things normally take a little while to take effect though so you’ll need to get cracking if you need it to take effect sooner rather than later.Loan

Negotiate Borrowing

Sometimes you can’t do any of the above things, or your situation is sufficiently serious that you need an injection of money in order to avoid penury.  You’re going to need some help.  That’s what borrowing is for, to help us navigate financial challenges.

Borrowing always needs to be undertaken carefully, if you want to avoid falling into a debt trap. And you always need a clear plan for repayment before you negotiate borrowing. If you don’t know how you are going to repay your borrowing you are not ready to borrow. Here are some potential ways forward.

Use your Overdraft: Most current accounts have an overdraft facility for short term borrowing. Some of the best accounts have an interest free facility for up to £250.  If you open a new current account and use a switching service many banks will offer a short term interest free overdraft facility to cover anomalies that occur whilst you are switching.  It’s one of the few times you can get an overdraft without paying interest.  Read the small print carefully.

Get a Zero Percent Card: I have a love-hate relationships with credit cards.  They are one of the easiest ways of getting into debt; indeed they are designed to do just that. How do you think credit card issuers make their money? However they are also incredibly useful and some of them provide very low cost lending which you can control.  a new credit card will take some time to get issued.  A quicker alternative is to apply for an increase to your credit limit.  You could even ask them to make this temporary if you wish.

Borrow from family: Likely to be the cheapest and the most uncomfortable option. The lack of interest charges and the informality of it all makes it a potentially attractive option.  However, these are people you need to live with, though, so think hard about this one and handle it well.  Be specific about when you will repay it and keep your word.  Never fall out with family over money.

So there you have it, ESPN.  Which lever(s) will you pull?

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