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My easy budgeting trick helps me cap my monthly spending and saves me £1,200 a year
Watch our video to find out how to use prepaid cards
AN easy budgeting trick has helped account executive Ed Doljanin go from overspending each month to saving £1,200 a year.
The 20-year-old, from London, now saves £100 a month and is building up an emergency fund.
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At 18, Ed decided not to go to university after leaving school and instead started looking for jobs to kick start his earnings.
He quickly bagged an internship at a tech firm in London after attending a conference with a student pass, where he convinced the director of his firm to take him on.
Two years later, he is now earning over £30,000 a year at the same company and he takes home around £2,200 a month.
Yet, with the cost of living soaring over the past few years, Ed told The Sun he was still struggling to not spend more than he earned.
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He pays £700 a month for a "tiny room" in a flat in Shepherd's Bush, west London, and that's without bills and general living expenses, which he estimates cost another £800 monthly.
Then once he adds commuting, socialising and any luxuries like subscriptions, he struggles to break even with his income.
"Late last year, I was struggling to make my monthly expenditure on food, bills and socialising match my budgeting goals," Ed said.
"When your spending for the last month exceeds your monthly take-home pay, it feels like an impossible problem to fix.
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"The largest chunk of my bills goes on commuting and food.
"Transport is a major draw on my budget - I spend around £200 a month for TFL (Transport for London) and national rail trains to visit family outside of London, even with a 16-25 railcard," he added.
"I try to limit my spending to £300 per month for going out and socialising, which includes an annual football season ticket, meeting friends two or three times a week and the occasional activity."
Easy budgeting trick helped me manage my money
Ed decided to give prepaid cards a go after hearing about them through colleagues at work, as he thought capping what he could spend would help him stick to his budget.
"Prepaid cards seemed like a great way to put a hard cap on my spending week to week, letting me top up a certain amount and more easily track my finances," he said.
"Since making the change, I've found I've been able to meet more of my savings goals and generally just have a better relationship with my spending."
Ed is one of millions of people who have switched to prepaid cards over the past few years as a way to manage their spending, new research has found.
One in five Brits (19%) said they used prepaid cards this month - a 118% increase since before the cost of living crisis began, a survey by prepaid card company Recharge found.
More than half of those who currently use prepaid cards (56%) are aged between 18 and 34, the survey found.
"The rising cost of living is a huge concern for everyone my age," Ed said.
Ed's monthly spending breakdown
Edward takes home around £2,200 a month after tax, and now he uses prepaid cards, he typically spends the following:
- £700 on rent for his room in Shepherd's Bush
- £800 for his bills and food
- £300 a month on socialising/going out
- £200 a month on TFL transport and trains to see friends/family
- £50 a month on subscriptions
- £25 a month on mobile phone plan
- £15 a month on Monzo max
Total monthly expenditure: £2,100
"The share of my generation’s budget which goes on essentials has increased significantly over the past few years, which makes saving really difficult, particularly for a home.
"Going out and socialising has also become a bigger burden."
How do prepaid cards work?
Prepaid cards allow you to load money onto the card in advance and you can only spend what's on it. They aren't linked to a bank account and there's no way to go overdrawn.
Gift cards for specific shops are a common example of prepaid cards, but many banks now also offer their own prepaid cards and there are specific prepaid card providers tailored to different types of users.
The Post Office offers a prepaid Euro card to spend abroad, for example, while Mastercard has a prepaid card it claims is "safer than cash".
You can typically load them using cash, online or on your phone.
After switching to prepaid cards for everything, Ed is now saving roughly £100 a month, which he's putting into a new "rainy day fund".
"The ability to load up my card with £250 for the week for all groceries, bills and going out has helped me maintain my focus on spending responsibly day to day," he explained.
"I have also used digital gift cards to set a hard cap on spending with certain streaming services.
"One common example is Netflix - I buy a gift card for a month’s subscription when there are shows I want to watch, taking away the risk of the subscription auto-renewing the next month."
Another major benefit of using a prepaid card, Ed said, is that it removes the risk of being scammed or defrauded.
"Having an easily replaceable prepaid card with a small balance for everyday transactions set up an air gap between my main bank account and the risk of fraud," Ed said.
Prepaid cards can be accessed by pretty much anyone - all you have to do is purchase one and load it up with cash.
This means poor credit isn't a barrier and you don't even need a bank account.
They can also be used when travelling and typically have good exchange rates and low transaction fees.
Is a prepaid card right for me?
PREPAID cards can help you keep track of your spending more easily than a card attached to your bank account, as you can only spend a fixed sum.
This may be a good option for you if you struggle to avoid spending more money than you can afford, or if you want to put strict allowances on what you can spend on certain things.
Prepaid cards can be loaded easily, but be aware if you lose the card you may not get your money back, so it's best to keep low amounts on them if possible.
If you're looking to make a large purchase, a credit card will provide you with better protection and you may be able to spread the cost of the purchase.
However, there are some things to beware of if you opt to use prepaid cards for your spending.
Some prepaid cards have fees to use them, which could eat into your funds.
Tesco's Clubcard Pay+ is fee-free and users can get access to ongoing rewards.
You need to sign up for a free Tesco Clubcard to get it and it then pays one point per £1 spent at Tesco and one for every £8 spent elsewhere.
Hyperjar's prepaid card also has no monthly fee, although you can only make five bank transfers for free each month - any more are charged at 50p each.
It's also important to note that prepaid cards don't come with Section 75 protection like you would get with a credit card.
This means you may struggle to get a refund if you have an issue with a purchase, such as if an item if it isn't as described.
There is also no guarantee you will get your money back if you lose your card.
Prepaid cards aren't covered by the Financial Services Compensation Scheme (FSCS), so if the firm goes bust you may lose your money too.
The FSCS can typically pay out up to £85,000 if a financial firm that holds your money goes bust.
It's best to only keep a small amount of money on prepaid cards at any one time to avoid the risk of losing out.
And bear in mind that by keeping money on a prepaid card, you are missing out on any savings rates you could get if you kept your cash in a savings account instead.
The top easy access savings accounts, where you can take your money out whenever you like, pay up to 5.2% interest, which could add up if you save regularly.
How else can I cap my spending?
If you don't think a prepaid card is right for you, there are other ways to help manage your monthly spending or budget to save money.
One way is to opt for a specific savings trend, such as cash-stuffing, where you keep physical cash and allocate it to certain areas of spending.
You could also try setting up a widget that pays your savings account every time you do something, like Mike Ashley, who has saved £2,000 by paying himself for skipping coffees.
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You can split your cash up into different pots if you use Monzo, which means you can allocate certain pots to spending on certain areas.
Ed said: "Prepaid cards worked for me, but others might fare better with a set amount of cash for the week or asking a friend to keep them accountable for their budget."
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