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2nd October 2018
Budgeting can be a life-changing process. It takes all the stress out of money management and once you’ve got a solid system up and running, it will take minimal effort to keep your affairs in order. However, some people fall at the first hurdle because of small budgeting challenges that can be easily overcome with a bit of careful consideration and forward planning.
To help you get a head start on your budgeting journey, we’ve put together our top 3 budget barriers and how to avoid them:
Problem 1: Underestimating costs
When setting up your initial budget figures, many people will incorrectly estimate how much they spend on things. Then, after a few months, they realise that they are suddenly massively over budget before they’ve even really begun.
Solution: Start from scratch
Although it might seem like a lot of hard work, once you’ve got this step sorted, things will be an awful lot easier for you going forward. If you need to get realistic spending figures, take a look through your bank account or credit card statement and tally up what you’ve spent on petrol, food, clothing etc. If you need accurate figures for your on-going bills, you should be able to phone your electricity, gas or water supplier and ask them what the cost per month is. A slightly more long-winded, but probably more accurate, way to do this would be to save every single receipt in an envelope for 3 months then add up all the receipts in each category and divide it by three to get a realistic figure of what you spend per month. It’s also a good idea to add an additional percentage to each of your monthly figures (around 5%) to cover any fluctuation in spending that can’t be controlled. For example, insurance costs often rise throughout the year and you can’t always predict this in advance.
Problem 2: Unexpected unbudgeted costs
This problem can range in severity but can throw people off in equal measure. For example, you may have people over for dinner one night, which sends you £50 over your food budget for the month, or you may have a car accident which is covered by insurance, but you need to stump up £500 excess to pay for it.
Solution: Add some breathing space
Breathing space in your budget will help you ‘plan’ for these unexpected costs without flying into a panic that you’ve wrecked your budget. You could increase your food budget by £50 every month so that on the months when you need that extra money, it’s there for you, and on the months when you don’t need that extra money, you can put it towards something else (like, Christmas, or paying off debts). It’s also a good idea to include an emergency fund in your budget. This can be used for car breakdowns, washing machine replacements, leaky roofs etc. This will really take the stress out of life’s little surprises!
Problem 3: Changes in life situations
As well as all of the unexpected events we go through in life, there are also many planned events that can throw us off budget. What if you suddenly find out you’re expecting a baby? Or you want to start planning a wedding? Where is that meant to fit into your budget?
Solution: Review, revise & modify
Your budget is a living, breathing document that needs to be adapted to suit your ever-changing life. It allows you to deal with your most pressing financial requirements as well as helping you to achieve your big life goals. Those things aren’t fixed. They change. And your budget has to be able to change with it. Don’t be scared to edit your budget to suit you.