How to budget like an expert!

Have you ever wondered how some people just manage to make their money go that little bit further? How is it that they post pictures of exotic holidays and seem to have the latest tech gadgets when your money barely sees you get from payday to payday?

The answer could well be in budgeting.

The good news is, you don’t have to be an expert to set the budgeting ball in motion either, in fact, just adopting a few fairly simple habits will make you master of your own money in next to no time. So, don’t wait for next new year or even next payday to make a money resolution, you can get going with these tips today!

Get a full financial picture

A great place to start budgeting is with a full picture of your current finances. Grab a pen and paper and list the following:

  • Your income
  • The cost of your bills
  • Any money owed to companies or individuals
  • Any luxuries you enjoy each month
  • Subscription costs (like Sky, Netflix, magazines, etc)

Create some categories

When you’ve got these things listed you should put them into categories:

  1. Income: Any money that you bring in each month
  2. Essential outgoings: Things that have to be paid, like rent, food shopping, travel costs mortage payments, bills, etc.
  3. Non-essential outgoings: Things that you pay for but could live without if pushed, like little luxuries, pay TV channels, etc.

Add up all of your essential outgoings. Now add up all your income (obviously add partner or other household income if you’re doing this for more than one person).

When you take this cost of essential outgoings from your income you’re left with your ‘disposable income’.

Now, it might be tricky working out what this figure is – there’s lots of things that fall into the ‘essential outgoings’ category that might be variable, like food costs, travel expenses – and so forth. If you really struggle to work out what these are then print a bank statement and run a highlighter through any expense you think is food shopping or travel costs. If you’re not sure, make a note of everything you spend on that outgoing over the next week or so – then times the figure up so you’ve got an idea of what a month looks like.

This disposable income figure might look quite high! But don’t forget, there’s other things to come off it yet – your non-essential outgoings. Add them up and take them away too. Then get ready for the next step…

Assess every figure

There’s a good chance that ‘non-essential outgoings’ figure had quite an impact on your disposable income! So, now’s the time to ask yourself how important each of those things are to your life.

Think you could live without 400 channels and the choice of 10,000 movies you’ll never watch? Cancel it. Would cutting down to just one takeaway a month help your spending power? Go to the kitchen drawer and throw the menu away!

This is the wonderful part of budgeting – you get to play with the figures and come up with an amount of money you’d like to keep in the bank! Imagine where you could go on holiday if you saved a big chunk of what you currently spend on luxuries? There’s a lot more you can control than you might think!

Add an outgoing

After looking through all those outgoings and imagining swapping them for a glorious suntan or something else you can’t currently justify doing the last thing you want to do is add something else that takes money from your account – but hear us out, this one’s important!

Savings.

Savings don’t happen by accident, they need to be budgeted for – but the good news is, we’re going to suggest that you keep the figure on the low side for now.

Why? Well, studies show that the more manageable the amount you’re saving, the better your chances at keeping the cash in your savings account – instead of raiding it for a huge chunk you put away with the best intentions.

Even if you just start with £20 each month and commit to keeping it there, the habit of seeing money leave your current account is easier to build on – rather than just hoping there’s some left over when payday next comes around.

Start recording

Shops, websites and services are designed to take our money quickly and easily. Punching in your debit card PIN is a much easier way of saying goodbye to £100 then actually handing over the cash – so if you want to get your spending back into focus then you should start recording what leaves your account every day – and what you end up spending it on.

Buy a cheap diary, 99p will get you something perfectly suitable. Now, use your banking app to look at everything you’ve spent during the day and note it down – it’ll only take you 2-3 minutes if you do it every day.

Create some ‘pots’ of money

This spending journal you’ve created is a great way to look at where your money is going. Spend £3 on a meal deal every work day? You might be surprised to see that ‘lunch’ pot of money total £80+ over the course of the month.

Instead of seeing how this money stacks up after it’s spent, why not set yourself some weekly or monthly limits? You could cut that lunch budget in half (at least) if you made sandwiches to take to work each day – meaning you can save £40 each month – or nearly £500 over the course of a year…

You might need to tighten the purse strings in some places, but when it adds up you’re likely to see big money benefits.

Why bother?

You might look at this and ask yourself ‘why should I bother?’ – a question we don’t have an answer for – instead, we’ve got 7…

  • You’re much less likely to end up in debt
  • You’re more able to save up for luxuries you can’t currently justify
  • You’re far more likely to spot areas where you can save
  • You won’t feel the pain when big unexpected bills or costs hit
  • You’re more likely to be accepted for finance, a mortgage or a loan
  • You’re likely to have a better credit rating so you can access credit if you need it

If any of these appeal, get started today…

James Jones

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