Did that title grab your attention? It better have done!
I work in finance and I like to think that I pay attention to my finances and that I have the best deals around for my utilities, mortgage etc… However, I decided that I should conduct an in depth financial review once a year.
I thought I might be able to make some marginal gains on my journey to retiring early and achieving Financial Independence. I say to you that the first place to start is analysing your finances so I thought I should practice what I preach!
Before I go any further I am going to state the figures, as this is what you want to know. I spent a total of 8 hours reviewing my finances and correcting/improving the necessary things. In total I saved £1,769 this year!
This works out at £221 an hour! Not bad if I do say so myself.
So if any of you where undecided on whether this was the right place to start or not, it definitely is. This reduced the figure I needed to be financially independent by £44,225. This is without taking into account any interest I would received on this £1,769.
Based on earning 5% and saving £1,769 for ten years, I would have saved in total £24,881. Firstly, this shows how valuable compound interest is and secondly how vital it is you follow the steps in this post
So How did I save £1,769 for 8 Hours work
The first thing I would say is that it is vital you do this honestly and don’t hide anything or say something was a one off. You need to include absolutely everything you have spent over the last 12 months.
So first of all I got together every bank statement and credit card statement I had for the last 12 months. With the wonders of the interest this is a five minute job and I had them all up online.
I then opened up Microsoft Excel and split my expenditure into three sections:
- Committed Expenditure
- Essential Expenditure
- Quality of Living Expenditure
Committed expenditure is everything you are committed to spending, i.e any mortgages, car loans, hire purchases, rent etc…
Essential expenditure is anything you need to live, this includes everything from you weekly food shopping to your weekly train ticket, your petrol, car insurance etc… Everything you can think of that you need to live. If you want the spreadsheet I used, simply subscribe to the blog in the box to your right and you will get it emailed straight to you!
Lastly is quality of living expenditure. This is the least important of them all. These are things you don’t need to live on a weekly basis, however, you do spend more money than you imagine on them. This is everything from eating out to your sky subscription to your annual holiday.
Everything you spend on a monthly and annual basis needs to go on this list! Nothing should be missed out, if you are unsure where to put something this often means it isn’t a necessity and should go in the quality of living expenditure.
Now we have our expenditure detailed I also included a section for my assets and liabilities. This isn’t necessary but I feel it is needed to highlight your full financial situation currently.
I tackled each section separately as each section presents a different way to save money.
Firstly, committed expenditure. This section is the section you should focus on first. Two reasons for this. One, this is where you can make your greatest savings, and two because you should have as little in this section as possible. If there is anything in this section which isn’t making you money (I.e Rental Mortgages, Mortgages that are fully offset etc… Read this article) you should look to pay it off ASAP.
Second you look at your essential living expenditure. This section provides a different opportunity to save money. This section is a necessary evil and there is often very little that you can remove currently, unless you fancy riding a bike instead of owning a car.
The essential living expenditure section is about efficiency making sure that you are getting the best price for everything. Now I am not advocating getting rid of things such as life insurance, as you need them, but do you have the best deal? Is that insurance product the best value for money you can get? Are you spending too much on food a week because you do five little shops instead of one big shop? Focus on making the most of what you do spend.
Quality of Living expenditure is a tough one and one where there should be a lot of money been spent on things you didn’t expect to spend them on. It turns out I waste money and lots of it. The money I saved in this section I haven’t included as I don’t feel I can validate this until I have had a further 12 months. This is something that I can’t verify so I don’t feel it’s right that I include it.
Where I found my £1,769 Savings
Firstly, the majority of my savings came in the committed expenditure, where I made a huge saving. I also made some considerable savings in essential living expenditure. In quality of living expenditure, I did make some savings, but nothing on the scale of the other areas. So where did I save money?
The first one was my mortgage (Yes I have one). When I took this mortgage out I was in a bit of a rush and due to how I earn my income and the money I had tied up in property and investments I had to basically take the mortgage I could get and run. Now I am a banks dream mortgage customer.
My fixed rate didn’t end for another 21 months, and whilst initially this fazed me, I learnt that this was a hurdle I could get over. My early repayment charge was £1,524, that sounds a lot but in the grand scheme of things it isn’t.
I found a new mortgage rate that allowed me to save £2,912 in interest alone, with a free valuation, free legal costs and no arrangement fee. So I saved £1,388!
On top of this I also have an extra year on the fixed rate period, and I have an offset mortgage (Insert link) which gives me far greater flexibility and allows me to repay my mortgage far quicker.
I also paid an extra £8,000 off the mortgage, this wasn’t due to any other reason than I wanted to reduce the mortgage as quick as I could. So all in all I saved £1,388 by re-mortgaging! I would really recommend speaking to someone about re-mortgaging as it can save you a fortune. Follow the link and say you came through this website and they will give you 75% off the broker arrangement fee!
Moving on. My car insurance renewal had come through four months earlier and they had automatically renewed it and the email went into my spam folder! This year my premium had increased by 25%. So straightaway I went on my favourite comparison website and found a price that was £489 cheaper!
The next thing I saved money on was my life insurance. When I begun running my own company I took out some additional insurance and it turns out this included life insurance. However, I kept my previous life insurance in place. I instantly rang up my life insurance provider and cancelled it. This saved my £9.00 a month or £108 a year.
During the past year my other half moved in with me and she trebled the contents in our house (Typical!). The insurance was the same as when I took out my mortgage and I knew I needed to review it.
After a quick search I realised it was worth cancelling my home insurance and I did this instantly with no cancellation fee charged. I then replaced it with another policy that was £133 cheaper and paid for it upfront to save them charging me a ridiculous interest rate. On top of this I went through a cashback website and got a further £50 off. I saved £188 and had more cover!
Last but not least is my favourite, even if it saves me the least. My mobile phone contract ran out three months ago and I hadn’t got round to changing it as I thought it was going to cost me more money. Instead it saved me money. I got a brand new phone free for £10.00 with unlimited texts, 200 minutes and 2MB of data. Now it’s not an iPhone, but who needs one? No-one! This was 7.50 a month cheaper than what I currently pay, and I got a new phone. So I saved £90 year by getting a brand new phone.
So how much did I save?
Well all in all I saved £1,769 from my financial review! More impressively the review itself took me 2 hours with a further 2 hours cancelling and changing the insurances. The mortgages took a bit longer and in total I spent around 4 hours re-mortgaging. This includes the mortgage process, collection of documents to give to the Building Society, signing and reading of paperwork and the time spent with the valuer.
The valuer even valued my house £10,000 more than I expected, but I didn’t think I could really count that towards my savings.
Taking all of this into account I earned £221 an hour. Now this isn’t something I am going to be able to replicate in the future, but this shows you why it’s worth reviewing your finances!
The £1,769 is what I saved this year, not for the next five years. If I didn’t do this and just left them as they where I would of spent an extra £1,769 a year I didn’t need to spend. Next year I will save the exact same amount again, will I have spent anymore time on it? No.
So this time next year I will have saved £3,528 and earnt £442 an hour!
What I learnt is that although I know where every single penny I spend goes it doesn’t mean I was spending it efficiently, or that I had the best deal I could. Now I have the setup in place, my review should only take an hour each year to make sure I am making the most of the money.
What next? Well each and every single one of you reading this should download the spreadsheet and do this for your finances.
Want a hand? Drop me an email!
Now we have learnt how to save money and we know that our money is being well spent its time to focus on making more money.