A simple guide to budgeting
2 minutes read time
- Making a budget ensures you’ll have enough money to do the things you need
- Your budget should be well-informed and accurate
- Use the 50-30-20 rule to kick start your savings
Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do.
Here are four tips to read before starting your budget:
- Gather together all statements and receipts
The success of a budget relies on its accuracy. Make sure you get all your bills and statements in front of you, preferably over at least three months so you can keep track of your quarterly expenses.
- Decide who your budget is for
Is it just for you, or is it for your partner/family too? If your finances can't be separated, you should sit down and do it together.
- Be as accurate as possible with your figures
It's tempting to underestimate your expenditure, but this will cause problems down the line. Try to be accurate, and, if you're not sure, guess larger not smaller – that way you'll have cash left over.
- Don't forget to include 'one-off' spends
Whether it's a holiday, car or birthday treat, we all have one-off spends that can affect our budget planning. The best way of accounting for these is to split the annual cost of these into monthly amounts.
Now that you’ve got the basics, there’s one handy tip to kick-start your savings. Here’s how it works:
Spend 50% of your monthly incomes on ‘must haves’ – these are unavoidable outgoings such as mortgage, rent and credit card bills. If something can be delayed for a while, it’s probably not a ‘must have’.
Spend 30% on ‘wants’ – these are the extra expenses that you don’t need every month, but realistically need every now and then. New clothes are a good example. Keeping these expenses to just 30% of your outgoings could help to keep you on top of your finances.
Save the remaining 20% (or use it to pay off debt) – this might not seem like a high proportion of your income, but over time your savings could really start to add up. The most important aspect of saving – like getting exercise – is building it into your life so it becomes a permanent habit.
Cost of living 70-20-10 rule?
With the cost of living on the rise, the 70-20-10 rule has become popular. So, if you can't afford to save 20% on a regular basis, then aim for 10%. Budgeting should be flexible to suit your real life situation. The key is to do the maths and understand what you can afford to save and make that an aim on a monthly basis.