Protect Your Pennies – 5 Steps to Making and Sticking to Your Budget

Budgeting & Protecting your Pennies – 5 Steps to making and sticking to your budget

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Do you know where your money goes? It’s always been important to be aware of how much money is coming in and going out. But with the cost of living crisis, it’s even more crucial to make a budget.

It’s something that is frequently on people’s lists; a job for a rainy day that never comes!

I would encourage you to get it off your to-do list and go for it. Take control of your finances today.

“But how do we do it?” I hear you ask! I will take you through 5 steps to get you on track.

So why is creating a budget so important?

How a budget will help you:

Setting up a budget means you’re:

  • less likely to end up in debt;
  • less likely to get caught out by unexpected costs;
  • more likely to have a good credit rating;
  • more likely to be accepted for a mortgage or loan; and
  • able to spot areas where you can make savings.

Know your outgoings

It’s important to make a start by knowing what is going out of your bank account.

Firstly, you’ll need to work out how much you spend on:

  • household bills,
  • living costs,
  • financial products (insurance, etc.),
  • family and friends (presents, etc.),
  • travel (car costs, public transport, etc.), and
  • leisure (holidays, sport, restaurants, hairdressers, etc.)

Just grab as much information as you can about your income and spending (bills, bank statements, etc.) and get started. If you don’t keep these items in one place, it’s worth starting now. Remember to include all of the costs that you pay out monthly: don’t forget TV licences, maintenance costs, etc.

Be honest with yourself about what you are spending. You are only fooling yourself if you try to hide that cup of coffee a day you buy on the way into the office.

Budget in the way that works for you. For some, this will be using a spreadsheet, for others, it will be using apps.

There are some great free budgeting apps available and your bank or building society might have an online budgeting tool that takes information directly from your transactions.

Getting your budget back on track

Do you know where your money goes or does it just disappear? The first step of knowing your outgoings will help you to answer this question. Now you need to figure out how you can reduce your spending.

Start by calculating how much money you earn each month.

If you’re spending more than you have coming in, you need to work out where you can cut back — sometimes ruthlessly! You could also keep a spending diary and make a note of everything you buy in a month. It’s quite surprising, when you write everything down, to discover how much you spend. This isn’t the time to hide your own expenses from yourself! Be honest and note it all down.

While you are doing this, think of any costs you can cut and jot down a to-do list:

1. Haggle with broadband and phone providers

It’s a good idea to do your homework before you call and get some quotes from rivals.

2. Shop around for groceries

It’s surprising what a difference this can make – Aldi, Lidl and Asda tend to be the cheapest. I’ve noticed that Tesco is price matching with Aldi so that is a bonus!

3. Avoid convenience stores

Sometimes it’s easy to pop into Tesco Express or Sainsburys Local or the corner shop if you’ve forgotten something, but it’s a good idea to not buy much there.  They tend to charge more than the regular supermarkets because of higher rents and rates. The key here is to plan ahead as much as possible.

4. Check you aren’t overpaying council tax

Are you taking advantage of your 25% discount if you are living alone, under 18, full time student or severely mentally impaired?

5. Monitor your appliance usage

Try not to use a tumble drier and use a 30 degree wash if possible – this will cut your energy usage by 38% compared with a 40 degree wash. You may be on a tariff where using your appliances at certain times of the day is cheaper so check it out with your provider. Do you switch things off when not in use? This also goes for lights.

6. Don’t heat your whole home

Try and use portable electric heaters for a short while rather than putting on your central heating.  Also use hot water bottles and blankets, and wear layers. Luckily we’re in the warmer months now!

Get everyone involved

Get everyone in your family involved in keeping to a budget. Sit down together and make a plan that you can all stick to.

Work out how much spending money is available and agree between you what you’ll each have. If you don’t get everyone on board there will be resistance to sticking to the budget.

Maybe you can set targets and come up with low cost ways to celebrate if you hit them?

Be flexible

Life is unpredictable, as we know!  So try to review your budget and your spending if there’s a change, or at least every couple of months. We never know what is around the corner, so if things change then make sure you update your budget.

Once you get the hang of tracking your expenses, you can try using a service like Mint to manage it for you.

Connect your bank account and it will automatically tag your transactions, so you can easily see how much you’re spending on bills, groceries, restaurants, shopping, and other categories. You can also use it to set budgets for different things like groceries or entertainment and get notified when you’re going over.

Stick to your budget

It is easy to spend more than you make, and if you stop tracking your spending you can go over and run up debt really quickly. Learning how to budget helps you decide how to spend your money. Without the plan, you may spend your money on things that are not important to you and cause stress that you don’t need.

Budgeting is one of those things I notice is on people’s lists and tends to remain there!  It seems like a massive effort to get it sorted but it really isn’t as long as you pace yourself.  Go for it and get it done as you will find it an incredibly useful exercise!

If you would like some advice on your personal spending, get in touch with me about my Personal Finance Mentoring or why not join me on my Master your Money Mindset workshops.

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