Creating a Budget
For years the accepted wisdom has been that if you need to make a big purchase, for example a car or a holiday, you get it on credit and worry about the payments later.
But with credit companies cutting their lending many of us are being forced into a more frugal way of life, living within our means and sticking to a budget – which is no bad thing!
But creating a budget can be an exasperating process. And sticking to it can be even more trying!
So try following these ten simple steps to keep on top of your finances and make your money go further.
It’s easy to procrastinate and put off creating a budget but it’s important to get going as soon as possible.
So to get started simply write down all of your outgoings, from fixed payments such as rent and council tax through to the fluctuating costs like telephone and shopping bills.
Then set your budgeting time to a scale that suits you, a good idea is to make it coincide with your pay schedule. So if you get paid weekly, set up a weekly budgeting sheet, if you collect your wages monthly then a month-by-month budget is probably the best way to go.
It’s important to be honest with your budgeting plan, include all outgoings and all debt and remember that it’s better to overestimate your outgoings than to underestimate them.
If you overestimate there’s a chance that you’ll be left with some extra cash at the end of the month, underestimate and you could find yourself falling short and reaching for the plastic to make ends meet!
When creating a budget it’s always a good idea to try and factor in an amount of money that you can save each month.
Just putting by a small amount each month will soon add up.
Once you have finalised a figure, set up a savings account that is linked to your current account. If the cash is getting paid straight into your savings account via a direct debit you are less likely to forego putting money aside each month.
And, before you open a savings account, it’s worth checking a savings account calculator, such as the one found on moneysupermarket.com, to see which bank can offer you the best interest rate.
Take out a set amount of cash each week to cover any discretionary expenses, those being the things that you could probably live without.
Whereas simply swiping a card is a very detached, and easy, way of making an impulse purchase, it can be a quite sobering – and stressful – experience to see a week’s worth of money dwindling as you get towards the weekend.
Using cash in this way can really make you think twice about making those impulsive purchases!
This could be the toughest one of all but curbing any bad habits, be it smoking, drinking, gambling or whatever, can save a lot of money month on month.
If you then put any money you’ve saved towards paying off other monthly expenses then you’ll soon notice a drop in these bills…and it might just help your physical and mental well being too!
When living on a budget it’s important to make sure that everyone in your household shares the responsibility.
There’s no point budgeting and living within your means each month if your spouse or partner is busy racking up the debt as this will soon eat into your finances.
So when creating a budget, make sure that everyone in your household is involved, are aware of the spending limitations and the fact that by all cutting back a little you can all save a lot in the long run.
This may not seem like the best piece of advice but, if used properly, a new credit card could save you a lot of money as the months go by.
If you have a credit card with a high level of interest and an outstanding balance to pay, then it’s a good idea to set this as one of your priority debts and get it paid off as quickly as possible.
But, if you can transfer the balance onto a new credit card with a zero per cent interest rate, then the payments you are making will come directly off the money you owe as opposed to going into the pockets of the lenders in interest payments.
And, because you are paying off the balance and not the interest, you’ll pay off the debt a lot quicker.
If you are making payments by cheque it’s important to keep a note of when these payments were made and when the money should be leaving your account and adjust your figures accordingly.
We’ve become so accustomed to the instant nature of card payments that it’s easy to forget that cheques can take a couple of days to clear from your account.
So when paying by cheque you should instantly balance your account to accommodate this as a failure to do so can lead to you thinking you have more money in your account than you actually have.
This can then lead to you having insufficient funds in your account and you can then fall foul of the charges associated with this.
The key to sticking to a budget is to keep a record of all of your expenditure and the easiest way to do this is to simply keep your receipts.
Keeping a record of how much you are spending and where you are spending it can help to identify the areas in which you can cut costs.
In addition, when you can actually see where you money is going, this can reduce the temptation to overspend.
Whilst shopping online offers a lot of convenience, especially for things such as groceries, it’s also a minefield when it comes to overspending.
As the shopping experience is so detached, it’s far too easy to get carried away with impulse purchases that you can complete with just a click of your credit card details or online payment account.
So try to cut down the amount of shopping you do online and maybe just stick to the weekly essentials, such as grocery shopping.
In fact doing your grocery shopping online can actually curb your impulse spending as you can stick to your weekly shopping list without having to walk past the bin end offers that supermarkets try to tempt you with.
These are just a few of the ways that you can successfully create a budget and stick to it. But the key to successful budgeting is being sensible with your money and not living beyond your means.
And remember, if you do fall into debt, don’t bury your head in the sand, address the problem and start budgeting straight way!
Creating a budget article written by Les Roberts, budget specialist at Moneysupermarket.com.