Top tips for better budgeting
Last Modified 16th of February 2021
Sticking to your monthly calculations can be difficult, especially if you have debts or high living costs. We all struggle to make ends meet from time to time, which is why the team at Money Saving Advice has put together some support tips when it comes to budgeting…
1. Be in the know
Knowledge is power, so the saying goes, and this definitely applies when it comes to setting a budget each month. The first thing you need to do is be aware of exactly how much income you receive including salary, benefits, interest and so on – and how much you pay out in the form bills e.g. mortgage or rent, utility bills, council tax etc. Don’t forget to factor in annual payments such as your television license fee and car tax.
When you’ve worked out how much is left minus your monthly bills, make a list of all the necessities you will need to purchase such as food and petrol. Work out a realistic amount you will need to spend each week on these items and deduct four times that amount from your leftover budget to account for the whole month.
2. Ground yourself
The next step is to put yourself in a better financial grounding. If you have debt, work out how much from the remaining sum you can afford to pay towards the outstanding sum. Always start by paying off the debt with the most expensive interest rate first, working your way through until you pay off the cheapest last. If you have no debt, decide a figure you can afford to put into a savings account on a monthly basis to protect you in the event of emergencies.
3. Withdraw your weekly budget in cash
Once you’ve made those calculations, the figure left over is your spending money for the month. To stop you accidentally exceeding this, get into the habit of going to the cash point once a week and withdrawing the money you need. It’s all too easy to charge items to your debit or credit card and not notice how much you’re spending.
4. Keep a finance diary
If you find yourself in the situation where your everyday expenditure consistently exceeds your budget, keep a diary of your finances for a week and analyse the results to see where you can make cutbacks. If you are a regular drinker or smoker, cutting back or stopping these habits is a straightforward way of making a noticeable difference to your monthly outgoings.
For any purchases you must make on card, say for large investments that you’re spreading across several months on a credit card or online goods, keep a record of the receipts and include them in your budgeting calculations. If you’re making payments by cheque, be sure to balance your chequebook so that the figures add up correctly.
5. Get the whole family involved
Involve your whole family in the budgeting process if you live with a partner and/or children. It’s important that everyone in your household understands the importance of saving money – whether it’s making sure the kids turn off lights and electrical devices whenever they leave a room or checking your husband doesn’t arrive home with an impromptu takeaway when you’re trying to keep your food bills within a certain figure.
6. Don’t cut corners
When the budget is in place and working well for all the family, make sure you keep a close eye on your sums. At the end of each month, analyse the money your household has spent to see if it lies within the budget you have set. Don’t be tempted to cut corners by not writing down small expenditures like a shop-bought coffee or some sweets for the children – all these pennies and pounds add up when you look at your expenditure over several weeks.
7. Keep a cash float in your account for back-up funds
If, after a few weeks, you find yourself spending less than you thought, don’t be tempted to splurge the extra money you’ve saved. Keep a ‘float’ in your current account or set up an instant access savings account to ensure you have financial backup for life’s little emergencies; you never know when the car is going to suffer a mechanical failure or the fridge is going to break down. Not being prepared can severely set you back financially and lead you to rely on high interest rate credit cards to sort the problem.
It may sound like a lot of hard work, but diligent budgeting can lead to a long-term peace of mind that your finances are in order and guilt-free spending when you know you’ve got enough left at the end of the week to treat yourself to that bar of chocolate or glass of wine!