There is a lack of savings in the UK, as some 21 million people have less than £500 put aside for emergencies, according to the UK Financial Capability Survey.
This is why Royal London and YouGov gave a sample of people smartphone budgeting apps or a pen-and-paper equivalent to track their spending habits for a three-month period in a recent research project.
About a quarter of participants persevered for the three-month period and several reported changes in behaviour. Of those who persevered with the exercise, half said that using a budgeting method was helpful to monitor their spending.
More than 1 in 3 said that since they started budgeting they had a better understanding of their income and expenditure. Around one in four said they were now more likely to discuss their household finances with their partner, family or household.
Changes in behaviour
Budgeting also encouraged people to save for unexpected expenses with a quarter saying they were more motivated to do so at the end of the project.
Steve Webb, director of policy at Royal London, says: 'What was interesting about our research project was the way in which the simple act of monitoring what you spend every day or week made some people more aware and put them more in control of their finances.'
Some of the changes in behaviour reported by participants included:
- Shopping at cheaper supermarkets
- Cycling to work instead of taking the bus
- Going through bank statements and spotting old direct debits and standing orders that had never been cancelled
- Giving up smoking
- Buying a quality coffee machine instead of spending large amounts each week on expensive bought-in coffee
Feedback from individual participants included: "It has really helped me understand what I am spending each month... I used the budgeting tool to track money I spend on everything such as what money goes on childcare, groceries, clothes, how much I take out in cash."
There were numerous examples of participants now having a small surplus at the end of the month, with one participant saying: "I used to buy non-essentials on impulse, I no longer do this. I would rather save money each month.
"I list essential items I need, if I see a bargain I will sometimes buy it but on the whole I stick to what I need so at the end of the month I have money left. I put this into an online savings account which I am now using for maybe an extra holiday."
The study also looked at whether technology, such as smartphone budgeting apps, could make a difference compared to the traditional method of using a pen and paper to track your finances.
Interestingly, 74% said budgeting with pen and paper was good or very good at encouraging them to interact with their finances. This compares with an average of 53% of people who said the same about budgeting apps.
This story was originally written for our sister magazine, Money Observer.