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1. In these difficult and trying economic times I am reminded
of the following quote:

2. "Annual income twenty pounds, annual expenditure
nineteen nineteen and six, result happiness. Annual
income twenty pounds, annual expenditure twenty
pounds ought and six, result misery."

3. - Charles Dickens, David Copperfield, Ch. 12

4. The quote reminds us that if we spend more than we earn
the only result is uncontrolled debt and, inevitably, misery.
Living within our means is a lesson that has been hard to
remember as we have grown used to the unrelenting
supply of cheap credit. And, despite the financial crisis of
2009, we still seem to be, as a society, hell-bent on
spending more than we have.

5. This is a good place to admit that I am no angel when it
comes to credit as I have, in the past spent more than I
earned, creating a level of debt that was unsustainable.
Throw in an unplanned redundancy and I certainly
experienced some of the misery that Dickens wrote about.

6. So how can you regain control of your money and escape
the misery of debt?

7. I decided to handle my finances differently by using a very
simple formula which gave me two significant numbers to
live by which I call the 80:20 rule.

8. First I took my last six months of bank statements and
reviewed everything that I spent money on. I would
recommend six months worth of bank statements as this
gives a more representative picture of what you are
spending your money on. I divided where I was spending
money into three general groups which I called fixed
expenditure, variable expenditure and disposable income.

9. My fixed expenditure included all my major household
bills, so mortgage, utilities and insurance policies.

10. Variable expenditure was stuff that I spent money on
every month but that changed from month to month. This
included things such as food, fuel for the car and
entertainment. As you can see these varied because if I did
not drive the car or I ate out less, then the overall money
that I spent would go down. I, importantly, included my
credit card bill in this group as if I spent more on my credit
card then my credit card bill would go up and vice versa.

11. The disposable income was the money that I had left from
what I earned after I had taken out the fixed and variable
expenditure.

12. I then converted everything into a percentage. So for
example if my earnings for a month were £1000 and all my
bills (fixed expenditure) was £600, my variable
expenditure was £300 and the money left was £100 that
would be 60% fixed, 30% variable and 10% disposable.

13. Having broken my finances down into three simple
numbers it was then an easy case of setting boundaries to
live by which I called the 80:20 rule. That is my fixed and
variable expenditure should not exceed 80% of my income
giving me 20% of my income to use as I wanted. I also
decided that of that 20% I would save half, that is to say
10% of my total income would go into a savings account.
This is now an unbreakable rule that I live by.

14. Believe me this has been a hard set of numbers to stick to
but in the end I have seen the benefit of doing this. So give
it a go and try to live by the 80:20 rule, you will see the
benefit.

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