Money Matters: An Electrical Engineer on 32k

Welcome to Money Matters: GLAMOUR’s weekly dive into the world of finance. We’re chatting all things personal finance, from contracting rights in the workplace to expert mortgage advice and saving for your first home, to ISAs and dealing with debt, to help empower you to make better choices. Now more than ever, it's important to understand our money, but so many of us feel as if we don't have a handle on it – or worse, feel anxious and scared about money.

So each week, a woman in a unique situation will give us an honest breakdown of her finances, and our expert will give her easy tips on how to tackle it.

To submit your own anonymous money diary and get top expert tips tailored to you, simply submit your entry here. And don’t forget to join GLAMOUR’s Facebook group, Money Matters, for more exclusive finance content.

She is in “quite a high amount of debt” following two maternity leaves, where she only received statutory pay. Her main financial goal is to get out of debt as soon as possible.

Lou and her husband have set a budget and cut back heavily on things they don't need, like branded groceries and meals out. She wants to know if she should still pay into her pension (the company matches 3% if she puts in 5%) while trying to pay off her debt.

MY ACCOUNTS

Current account: £1,400
Savings account: £250

MY INCOMINGS

Annual salary pre-tax: £32,500
Annual salary post-tax: £23,400
Monthly wage pre-tax: £2,708
Monthly wage post-tax: £1,950
Other incoming payments: £159

MY OUTGOINGS

Rent/mortgage: £940
Bills: £180
Splurges: £150
Other: £735
Any student loans/credit cards/overdrafts, etc.: One car loan (£15000 left) and a loan my parents gave us (£25,000, which includes another car they paid off for us to save interest and some urgent house repairs).

MY MONEY THOUGHTS

My worst money habit: Feeling like we have spare money to spend when we're actually £40k in debt (not including the mortgage).

My biggest money worry: Feeling like we're living payday to payday forever and not being able to cover emergencies when they crop up.

My financial hopes for the future: To be debt free.

Current money mood (three emojis which sum up your feelings towards money): 👶 🤡 😔

WHAT MONEY EXPERT MAKALA GREEN SAYS:

Makala Green is a multi-award-winning Chartered Financial Adviser at Schroders Personal Wealth and has over 18 years of experience in the financial industry. She understands managing money can be complicated and confusing, which is why she is passionate about making financial planning more accessible for all. She is also the Author of The Money Edit; a no shame no blame guide to taking control of your money.

Break the paycheck-to-paycheck cycle

You're not alone if you barely scrape by when payday rolls around. Understanding your cash flow is the best way to break the paycheck-to-paycheck cycle. In addition, living within your means can help you pay off your loans and credit card debt and keep you out of the credit cycle. Tracking your expenses is the best way to determine if you spend less than you earn and control spending. As you trim your expenses, you can start paying more than the minimum amount on your debts. It will help you pay off your debt quicker than an endless cycle of interest charges. If you need to use a credit card, pay the balance in full each month to avoid interest and repeating the same mistakes.

The benefits of budgeting

A budget planner can be beneficial when tackling debt because you can keep track of any fluctuations in expenses, control your finances and curb spending. Eventually, you want to be left with as much disposable income as possible to help you direct more money to debts. What you are left with at the end of each month is determined by the details of your day-to-day spending.

Actively look for ways to reduce your expenses in all areas, from being more selective when grocery shopping, such as buying own-brand items, to meal planning to make sure no food goes to waste. Also, use comparison and cash-back sites to ensure you pay as little as possible. Switching your energy, car insurance, mobile phone, and home insurance providers are also great ways to reduce monthly and annual costs. Many apps available online can help you get started with expense tracking.

Adopt the avalanche method

A debt avalanche is a repayment plan focusing on clearing your debt quicker. Essentially, you allocate enough money to make the minimum payment on each source of debt, then devote any remaining repayment funds to the debt with the highest interest, i.e., credit cards and loans. List your debts with the highest APR (annual percentage rate) first. Once the debt with the highest interest rate is entirely paid off, the extra repayment funds go toward the next highest-interest debt until all the debts are paid off completely. Speak with your parents and debtors about a realistic arrangement you can commit to.

Debts vs pensions

Clearing debt is a healthy start to financial planning and is a popular financial goal for many. A common financial principle dictates you should only consider saving or investing once debts are cleared, especially regarding money owed on credit cards and personal loans. But when it comes to retirement savings, it is futile to wait for years before you start saving into a pension, especially if you benefit from employer contributions and tax relief (reduces the tax you pay to the government).

However, if you have a lump sum of cash, for example, an annual bonus, in the long run, you are better off using this money to clear your debts. Another option is to reduce your expenditure so you can contribute more towards clearing debt quicker while maintaining your pension contributions.

Set a goal to be financially free.

Why make financial freedom a goal? Everyone has different dreams and desires to live on their own terms and not worry about money. Whether pursuing financial freedom to do more things you enjoy, like travelling or socialising. Living within your means and keeping track of your spending will lay a solid foundation for being debt-free and securing a more fruitful financial future. In addition, ensuring you have an efficient emergency fund (3-6 months' worth of expenses) and protection to cover you in unforeseen circumstances while being committed to saving for your future will give you greater control, peace of mind, and financial flexibility. Once you feel ready to start planning for your future, speak with a financial planner who can help you explore all your financial options.

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