When it comes to financial stability having a realistic budget in place is vital.
While some people may look at a budget as a way of restricting spending, it really provides a strong foundation for your financial life. Put simply, it makes your money work harder for you.
With careful planning, it becomes easier to manage your income and expenses while keeping future goals in sight.
This guide will explore practical strategies for budgeting, managing your income, and tips on shopping around for the best deals—especially for things like insurance renewals, where costs can add up quickly.
Understanding your income and expenditure
One of the first things to do when planning a budget is to get to grips of your income and expenditure.
Knowing where your money is actually going each month is vital when it comes to taking control of your finances. Keeping an eye on what you’re spending and when can help you avoid potential problems, like dipping into your overdraft unnecessarily, and even highlight where you could be saving.
Unsure where to start? We’ve got you covered with our handy tips.
Calculate your total income
Start by identifying all sources of income, whether it’s your salary, benefits, freelance earnings, or any other income stream.
Depending on how you’re paid, you may decide to plan your budget on a weekly or monthly basis.
It’s crucial to be clear about the exact amount you take home each month after tax and other deductions. Having this figure in hand will guide how much you can realistically spend.
Track your spending
Once you know how much you’re earning, the next step is to assess how much you’re spending. It’s a good idea to divide your expenses to the following categories:
Fixed expenses: These are regular payments that remain relatively constant, such as rent/mortgage, utilities, insurance, and loan repayments.
Variable expenses: These include items that change month to month, like groceries, entertainment, travel, and dining out.
Tracking your spending for at least one month will give you a clear picture of where your money is going. You might be surprised by how small, regular expenses—like that daily coffee—can add up over time.
Creating your budget
When you have an idea of how much you have to spend and where you need to spend it each month, you can begin to make changes.
It’s important to remember that a good budget is both realistic and flexible. That means it’ll not only allow you to cover your expenses but it’ll allow you to repay any debts, set aside savings and still leave room for spending on things you enjoy.
Knowing where to begin can seem tricky at first but we’ve got you covered with three simple suggestions.
1. Prioritise your needs
When drafting a budget, list your essential expenses first. These are non-negotiable costs like housing, utilities, and groceries. After that, you can allocate funds for non-essential items—things that improve your quality of life but aren’t strictly necessary.
2. Set clear financial goals
Having short-term and long-term financial goals can motivate you to stick to your budget.
Short-term goals could include building an emergency fund or paying off a small debt, while long-term goals might focus on saving for a home deposit or retirement.
Once you set these goals, make sure your budget reflects them. For example, you could set aside a specific amount of your income each month for savings or debt repayment.
3. Use the 50/30/20 rule
If you’re still unsure about the best way to divide up your income, try the 50/30/20 rule.
This method helps make budgeting easy by allocating:
- 50% of your income to necessities
- 30% to wants
- 20% to savings or debt repayment.
While this method works for many, you can tweak the percentages based on your financial situation. For example, if you’re heavily focused on debt repayment, you might shift more towards saving and less towards wants.
3 tips to maintain your budget
Once your budget is in place, the real challenge is sticking to it. Here are some practical tips for staying on track:
1. Regularly review your budget
Your financial situation can change over time, so it’s important to regularly review your budget and make adjustments if needed. For example, if you receive a pay rise, decide how you’ll allocate the extra income—perhaps boosting your savings or paying down more debt.
On the other hand, if an unexpected expense arises, such as a car repair, don’t panic. Reassess your budget and see where you can make temporary cuts to accommodate the new cost.
2. Set up direct debits for bills and savings
Automating your payments is a great way to avoid missing bills or overspending. Setting up direct debits for your fixed expenses ensures that these are paid on time every month. You can also set up automatic transfers to your savings account, so you don’t forget to save.
3. Use budgeting apps and tools
There are a wide range of budgeting apps available that can help you track your spending, set goals, and monitor your progress. Many of these apps link directly to your bank accounts, making it easier to manage your expenses and stay within your limits.
We’ve also created a handy tool to help you make sure your money is working as hard as it can for you.
Save on your regular bills
Let’s be honest, navigating the ever changing economic climate has been tricky for many of recently.
Having a budget doesn’t just mean limiting what you spend; it also means finding smarter ways to save on your regular expenses.
One area where this can make a significant impact is in your recurring bills, particularly insurance renewals for things like car and home insurance.
Shop around for insurance renewals
Many people overlook the potential savings available when renewing their insurance. Whether it’s car, home, or life insurance, sticking with the same provider year after year can lead to paying more than you should.
Don’t let your loyalty cost you. Before renewing, take the time to compare prices across multiple providers.
There are several comparison sites that can help you quickly check if another insurer can offer a better deal. Some companies may offer discounts to new customers that you won’t get as a loyal customer.
It’s also worth reviewing the details of your policy to ensure you’re not paying for features you don’t need. For example, you might be able to reduce costs by increasing your excess or adjusting your cover if your circumstances have changed.
Review your utility providers
Switching energy, broadband, or mobile phone providers can lead to significant savings, particularly if you’ve been with the same supplier for a long time. Many companies offer introductory deals to attract new customers, so make sure you’re not missing out on these by staying put.
Similarly, consider reviewing your subscriptions. Are you paying for a streaming service you rarely use or a gym membership you haven’t visited in months? Cutting back on these can help free up extra cash in your budget.
The benefits of budgeting
By creating a budget and sticking to it, you can reduce financial stress, pay off debt, and save for the future. It also helps you become more mindful of your spending habits, encouraging you to shop smarter and make better financial decisions.
Taking the time to shop around for deals—especially when it comes to things like insurance renewals—can free up extra money, giving you greater flexibility within your budget. Remember, the goal isn’t to restrict yourself but to create a balanced approach that allows you to enjoy life while working towards financial security.
In short, budgeting isn’t about cutting out everything fun or enjoyable—it’s about understanding where your money is going and making sure it’s working for you. With a thoughtful plan in place, you’ll be in a much better position to achieve your financial goals.
