What are the basics of budgeting?
The basic principle of budgeting is quite simple; you need to track your income, your expenses and what’s left over so you can ensure you always spend within your means. Without any form of budget, you’re unlikely to have a full understanding of what you’re able to spend each month which, over time, can lead to problems. It might start with you running out of cash before the end of the month, and eventually turn into more serious debts as you’re constantly playing catch up with yourself. A good budget will alleviate any of that and help you to make the most of your money.
Why should I budget?
Having a budget is the foundation to any healthy financial lifestyle. It will give you a true view of your money so you can build a spending plan that ensures you have enough money to spend on what’s important. In this day and age, it’s very easy to spend money you don’t have, on things you don’t really need. Having a budget allows you to act more consciously when spending and make decisions and plans to achieve your financial goals in the future.
For those who don’t know, financial goals can either be purchase-driven (e.g. buying a house, doing home renovations or going on holiday) or non-purchase driven (e.g. becoming debt free or having a good retirement income). It’s important everyone has goals with their finances and the first step to reaching them is to have a budget. If you don’t have financial goals yet, check out our blog on how to set them.
Where do I start with budgeting?
The first step in building a budget is to assess how much money you have coming in each month. This includes anything that will land in your bank account every single month, so it could be your work salary (after tax), any benefits you receive or anything you get given from family.
Once you’ve got a total amount of income, you need to work out your total monthly outgoings too. This needs to cover all essential purchases like household bills such as your mortgage or rent, energy bills, water bills, council tax, broadband, TV subscriptions etc, as well as other essential items you buy each month such as petrol and food shops. Hopefully, once you work this out, you’ll have some money left over so you can allocate an amount for savings and day-to-day spends.
How can I make sticking to a budget easier?
The hardest part of budgeting is making sure you stick to the plan you have set out for yourself. When you get into day-to-day life, it’s a challenge to keep track of all your spending – especially when you have a few different accounts that you use. The best way to make sticking to a budget easier is to use a money management app that tracks everything for you, so all you need to do is log in and check, rather than updating a lengthy spreadsheet.
Our app will do that for you, and more. It allows you to connect all your accounts so you can see everything in one place, and then our smart technology will pick up where you can make improvements. You’ll be given personalised advice so you can form better habits and even be given suggestions for when you could be saving money on bills by switching..
What should my budget look like?
Everyone’s budget will be different because it’s very much dependant on what you earn and the type of lifestyle you want to lead. But the main thing that determines if a budget is ‘good’ is whether or not it’s balanced and realistic. There's no point setting a budget that is impossible to stick to day-to day, and you also don’t want anything that’s not split appropriately between your needs, wants and future goals. You need to consider all your spending in relation to your income and make sure you are leaving enough aside to put away into savings, because that is what will help you build financial resilience over time.
What’s the 50:30:20 budget?
The 50:30:20 budget is one of the most popular budgeting tactics where you split your income into three brackets – Needs, Wants and Savings. From your take-home pay, 50% of it would cover your needs i.e. your essential costs (rent, bills, food, subscriptions), 30% would be money to spend on entertainment or anything that you want instead of need, and 20% of your pay-check would go towards saving. If you’ve wondered what ‘adulting’ looks like, it’s this.
You don’t have to stick to these percentages exactly, as you may find your needs only cost 40%, meaning you have another 10% for wants or saving, or 5% extra for each. This approach is flexible, but we’d recommend keeping a good portion for saving.