‘Budgeting’ is something more easily said than done. In this day and age, everything seems to have a price. Rents are escalating, bills can shock you, even kitting out your kids in their school uniforms can be a real struggle. Not many people have loads of cash left over after paying their regular monthly bills (not to mention those pesky unexpected extra costs that seem to spring up from time to time!); making budgeting all the more difficult.
So how do you go about setting yourself a realistic budget? The goal is to account for all your essentials, meet all your financial responsibilities, and put aside some savings for a rainy day – all while maintaining a good quality of life in the here and now. This can involve some fairly strict planning and reviewing of your income and expenditure.
Sitting down to write out a budget might seem a tedious task, but it can actually be extremely eye-opening and beneficial. Here we walk you through the best budget-setting process – it’s actually surprisingly simple!
Incomings and Outgoings
To create an effective budget, you need to calculate two fundamental figures:
Income (Money coming in): salaries, benefits, any other income sources
Expenditure (Money you spend): If you’re spending more than you’re earning, that’s when you will find yourself in financial difficulty and struggling to balance the books.
Do you Really Know How Much Money you Spend?
Many of us have a rough idea of what we shell out every month, but in order to get a full overview of our outgoings, we need to do some digging around for the detail. Spend a month making a note of what you spend your money of and break it down into categories to see which areas are costing you the most. Don’t miss anything out - find your bank statements, utility bills, rent payments, food receipts and any other documentation of spending for the last month.
It’s a good idea to use an online tool such as this one from Money Saving Expert to organise your monthly budget. It makes the job that little bit easier, and even helps you break down your costs into categories, and even prompts you to think about some cost areas you might have forgotten.
With all the information and numbers recorded in one place, you’ll find it a lot easier to see what’s going on in your finances. Are you living within your means or do you need to look for places to cut back to keep your wallet happy?
Areas to Cut Back On
Break down the things you spend your money on into three tiers: essentials, nice to have and non-essentials. Essentials are the things you’re obliged to pay for. Things like rent, bills, food and transport to work. ‘Nice to haves’ are the things that you don’t absolutely need to survive but that bring happiness, convenience and pleasure to your life. These could include meals out with your family, trips to the cinema, new clothes, etc. If you have anything within your bank statements that you recognize as absolutely non-essential – think carefully about repeating these kind of purchases in future. Think about either saving that money, or
see how you can replace or substitute those ‘non-essentials’ or ‘nice to haves’ for cheaper alternatives.
Set a Savings Goal
We’d all like to have a bit of extra cash to spend on the nice things in life - be it a house, car or family holiday. When trying to save for these items it can help to set yourself a savings goal; this can be weekly, monthly or yearly depending on what you’re attempting to save for. Even if you don’t have a specific goal in mind, having that buffer of funds to fall back on can really reduce the stress in your life.
Responsible Money Management
Personal financial planning, budgeting and setting goals for savings are all part of responsible money management. They help keep your finances healthy. At MYJAR this is our aim. If you do fall a bit short and have financial responsibilities that need to be met - we are determined to lead the way in responsible short-term lending. We run affordability and credit checks to see if customers can comfortably afford repayments, since we do not want customers to borrow more than they can easily afford to pay back.
Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk