To be successful in most things the first step is to create a plan – as the saying goes: failing to plan is just like planning to fail! This holds true for financial wellbeing and a huge factor in your financial security is to budget. We advise everyone starts with a simple and achievable plan and in the world of money management this is known as a budget. For some this comes naturally but for others it can be a very daunting task, however it does create the stepping stones to potential savings and is especially important in the ever changing world we live in.
A place to start when creating a budget is to use real income figures and real expenditure, allowing for deductions (like taxes) and actual spends throughout the month. This might not be quite what you were expecting when you group the spends together in categories, for example you may currently have £65 a week for food in mind when in reality this is more like £70 a week – which would actually increase your real monthly spending by £20! Also, that coffee you occasionally treat yourself to ‘once a week’ might actually amount to another £50 per month that you haven’t considered.
This is a really crucial part of your budget, and these categories range for different people. A ‘want’ is something that could make your life better but fundamentally you could live without it; however, a ‘need’ is essential for you to be able to live and work.
For example, my needs would currently include a winter coat to prepare me for the winter and forms an essential, however for others they may have one already in their wardrobe and an update for this season would fall within their ‘wants’ category.
A ‘need’ is usually a recurring expense, and we find that, in most cases needs would account for the majority of your budget.
Work out your short-term goals and separate those from your long-term aspirations, this can be hard to distinguish but can help in creating various savings and investment pots. It is much easier to reach your goals by identifying them in advance.
Who knows what unexpected events may occur, having a safety blanket of funds beneath you can really help in relieving financial anxiety. This is called an emergency fund and should only be allocated to expenses that can’t be avoided and would take pray yourself first, create a regular transaction into your savings as soon as possible after you receive your income.
Now you’ve got to this step, you’ve done most of the hard work and preparation to firstly understand your financial position and make improvements. You can start to implement a further savings plan to reach those goals you’ve set for yourself. If one of your goals was to spend less on food, consider preparing your lunches in advance so you won’t be tempted to spend during the week when you’re out and about.
We’re all humans and make impulsive decisions from time to time, however, don’t let this put you off managing your budget. If that one night out you had has consumed the entirety of your entertainment budget for the month then making a plan to cut back on other things may alleviate future strain. The main point in maintaining a budget is to do this over and over again and it’ll eventually become a habit – you may even learn to love it. Time is your friend, and the more consciously you treat your money, the better you’ll get at managing it.
Written by: Claire Calder
16 September 2022
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