Money comes in one day, goes out the next and if you’re lucky you’ve got a little bit left to play with after all that, right?
But what if it wasn’t down to ‘luck’ that you had some left over cash; what if you knew exactly how much money you were going to have leftover every month? Because even if you don’t like dealing with your finances or doing all the maths that comes with it and even if the mere mention of the word ‘budgeting’ makes you break out into a cold sweat, you should do it. And do it properly.
“Budgeting is a great way of ensuring that you are on track and focused with your money goals. It can act as an early warning system for you to easily identify if there is a problem with your money. For example if you feel that you are always skint by the end of the week/month, budgeting may help you to identify where the “leak” may be,” says Raj Shah, independent financial planner with Blue Wealth Capital.
So okay, we’ve gotta do it, but how? Shah suggests two ways, one of which is the 50/20/30 approach:
“50% of your income towards your fixed costs (rent/mortgage, utilities, car payments etc), 20% of our income towards securing your financial future (paying down debt, building an emergency fund and long term savings) and 30% of your income towards flexible spending (groceries, eating out, socialising etc).”
That method makes perfect sense but if calculating all that’s trickier than you’d like, try Shah’s second approach and get someone (read: an independent fee-only financial planner) to do it for you instead! Professionals may also have a budgeting template you can work from, Shah advises, but he also recommends the Money Advice Service’s Budget Planner “which is free and relatively easy to use”.
And making it even easier for you, Shah suggested some apps to try too:
“I like Money Hub and find it easy to use – available for both Apple and non-Apple devices. There are many others out there too but please ensure that whichever app you are using has very high security.”
So now you’ve got no excuse to overspend or dip into your hard-earned savings! But before you get out those bank statements to see just how much you spend on magazines and street market lunches a month, we’ve got some of our budgeting tips to share with you….
– When you know how much flexible spending money you’ve got for the month, take that amount out in cash, so you can see exactly what you’ve got left after every transaction.
1) Put more away on payday than you think you can afford to and just force yourself to live off the rest.
2) Enter everything into an Excel spreadsheet so you can see at a glance what you’ve got.
3) Have three accounts; save a third in an account you can’t touch for a while; put another third in an account which you can touch but would prefer not to; spend a third.
4) If by the following payday there’s money left in your ‘spend’ account, put that into your ‘can’t touch account’.
5) Always plan your meals and write a list when you shop (and don’t shop when you’re hungry!).