The word ‘budget’ has got itself a bad reputation.
But taking care of your finances doesn’t mean you’re stuck drinking tap water every
night while your friends splurge on magnums of champagne.
Sure, budgeting doesn’t have the same sex appeal as a new credit card or investing on
the stock market.
But it’s one of the most basic financial tools that’ll help you to get ahead in life.
If you’ve ever felt like you’re living pay cheque to paycheque, unable to put money
aside for the future, or find yourself racking up credit cards debts each month – a budgeting
strategy could help transform your finances.
Similarly, even if you’re living well within your means, budgets can be a great tool to
help you save up for something special like a car or a house deposit, or simply to help
build better spending habits.
In short, if you’re someone who earns money and spends money, you’ll need a budget to
keep everything in order.
The first step is working out how much money is coming in each month.
This is your income and will establish the ceiling for your budget plan.
Make sure you calculate your income based on your ‘take home pay’ after tax.
If your salary is “pay as you earn” or PAYE it’s likely the amount will have been
deducted automatically when you get paid.
If you’re a sole trader, LTD Company or get paid through dividends you’ll need to
factor in extra budget for those tax payments.
The second step is understanding your spending habits.
Go through your bank statements and credit cards and make a note of all your outgoings.
If you have recurring direct debits, make a note of when these come out so you know
where your money is going during the month.
Next you need to compare the two amounts.
If your monthly outgoings are equal to or higher than your income, you’re going to
need to cut back.
Step four is about implementing your budget.
There are loads of ways to do this but one of the simplest is the 50/30/20 method.
This is where your organise your income into dedicated buckets, for example:
50% of your income should be dedicated to essentials, things like rent, utilities, food
and transport.
30% of your income goes towards non-essentials like eating out, your TV subscriptions and
gym membership And 20% goes towards long-term savings – the
kind you avoid dipping into for that extra night out!
If your essentials are over 50% of your income then you might want to consider alternative
means of transport like cycling or downsizing your accommodation.
Non-essentials are definitely the easiest thing to cut back on.
Put your big person pants on here.
Be brutal and be honest with yourself.
As much as I love my Real Housewives I can live without the add-on TV subscription.
I’m kidding… it’s an essential.
This is where understanding your spending habits comes into play.
Budgeting doesn’t have to mean huge sacrifices: if you’re someone who can’t live without
their morning coffee but could feasibly live without their monthly mag subscription, substitute
one for the other.
That way, you’re literally dedicating more money to the things that bring you the most
joy.
The 50/30/20 method is only one way of budgeting and won’t work for everyone.
There’s also the 60/10/10/20 split where you dedicate 60% of your income to essentials,
10% to splurges (like takeaways, treats and online shopping), 10% to savings that make
you smile and 20% to your fire extinguisher fund for emergencies.
An additional tip is to also identify where you’re wasting money for example, bringing
packed lunches into work instead of spending £10 a day eating out.
Research your credit card, energy and phone providers to see if you could be getting a
better deal by switching to someone else.
Whether it’s £10 a day on food or £5 a month less on your phone bill, small amounts
can quickly add up.
Over time you’ll find the best budgeting methods that work for you.
Most mobile banking apps now come with budgeting features that help you keep track of where
you spend most of your money as well as tools to help you put money aside.
You can also sign up to a specific budgeting app like Yolt or Emma which use up-to-date
data analysis, spending reports and budgeting tips to help you improve your finances.
There are loads of these out there so visit finder.com/uk to compare which app could work
best for you.
The link is in the description below.
We’ve all been there, those months where you know you’ve overspent so you avoid looking
at your account like the plague.
The best thing you can do is bite the bullet, check your accounts and get on top of it now.
Whatever method, software or system you use, make sure you update your budget regularly.
You’ll want to take account of major changes like moving house or, oh I don’t know, a
global pandemic.
But even small changes like adjusting your mobile phone provider or working from home
can affect where your finances need to be allocated.
Be realistic.
Honey, we would all love to be saving £24,000 for that epic Caribbean all-inclusive!
But, I don’t know about you, I don’t have a spare £2000 to pop in my savings every
month.
If you’re struggling to stick to your goals in the first month it might mean your budget
is unrealistic and you need to revise your benchmarks.
In theory, no matter how much you earn or spend, or whatever your goals are, everyone
should be working from a budget.
So if it’s a dirty word to you, just know even the best of us are doing it!
For more information or to use our free budget planner visit finder.com/uk.
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