Setting a budget may feel a bit scary, but budgets are there to help not restrict. If you find a budgeting method that works for you, it can give the freedom to spend what you want with the knowledge that all your important expenses are covered.
Below are some tips on how to create an effective personal budgeting plan. If you already have one in place, we would love to hear more about your favourite budgeting tips and strategies. You may do so by visiting our facebook page and sharing your comments there.
1. Record your income
Before you can calculate what you can afford to spend, you need to know what you have coming into your account. Write down all your monthly income, including your salary and any benefits or interest payments that you receive.
How you record this information is up to you. You may be old-fashioned and prefer the traditional pen and paper method, or you may find that a spreadsheet or a specific budgeting app suits you best.
2. Calculate your expenditure
Calculate your outgoings. While this may seem like an obvious tip, this step can sometimes trip people up.
As part of this exercise, note down what your fixed costs are each month (mortgage/rent, utility bills, credit card payments, any debt, etc.).
Also note what annual costs occur in that month; these could be things such as paying for your annual TV licence license, recurring credit card interest or your car service. If you don’t know when these expenses are due off the top of your head, go back through your paperwork or accounts and see when your last payment was made. Make a note for these annual costs to be included in the relevant month’s budget. This way, you can avoid being surprised by an unexpected payment.
Similarly, your calendar is your best friend when it comes to budgeting. At the start of the month, go through all the events you have planned. Dinner out with friends on Friday? Put it into your budget. Mum’s birthday coming up this month? Calculate what you plan to spend on a present and stick to it.
3. Be honest with yourself
Budgeting only really works if you are honest with yourself. If you underestimate how much you’re likely to spend, you can find yourself going over budget on a regular basis. Where possible, input realistic figures into your budget.
4. Round up your outgoings
This is a simple budgeting tip that can make a big difference. When inputting your expected outgoings for the month, always try to round up.
If you are estimating how much you will spend on a night out or on travel, always try to go slightly higher in order to give yourself some breathing room. And if you have a utility bill coming out that is £28.44, make it £29 in your records.
Not only does it make all your calculations that a bit simpler, but it also means that you are likely to have a little extra cash left over in your account.
5. Add a buffer
When setting up your budget, try to build in a buffer. Even if it is £50 for the month, it will give you that small bit of breathing space in case you do go over on some of your spending.
6. Don’t trust your bank balance
This may seem like a strange bit of advice, but don’t always trust your bank balance. What you see on the screen may not actually be the true picture of your finances.
You may have pending payments that have not come out yet, or regular payments due to come out later in the month. Or, simply, you may log in on a Monday morning before your spending from the weekend has come through.
While checking your balance regularly is definitely useful, try to look beyond the current figure and actually work out what, once you take into account payments that have yet to come out, your actual balance is.
7. Automate your savings plan
Sometimes, remembering to save can be a struggle. Automating your savings is an easy way to stay on track with your savings plan. Schedule automatic transfers from your current account to your savings to build your emergency fund. Open a savings account and set up automatic contributions every payday to build your nest egg. Automating deposits into different accounts ensures that you’re saving instead of spending and over time, the power of compound interest can help your money grow steadily.
8. Get financially savvy
Finally, we live in an age where there is an app or financial product for almost everything – so try to make the most of them.
Whereas an old-school budgeting technique was to withdraw your weekly spend in cash, you may not find this suits your lifestyle. If that is the case, you could consider a prepaid card without an overdraft facility. This way you can still limit your spending but do it in a way that suits your lifestyle.
Similarly, if you are struggling to see where your money goes on a regular basis, you can make use of free apps such as Emma, Yolt, and Money Dashboard. These types of s budgeting apps categorise your spending automatically so you can see where most of it is going. You may then identify that you are frequenting Costa a little too often and need to cut back on the caramel lattes.
We all have dreams for the future, and many some of those dreams require a specific amount in savings to make them come true. Reaching those milestones starts with setting clear objectives around saving and investing with a goal in mind. Need help in defining your financial goals and establishing a plan to help you achieve them?
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