In past blogs, we looked at reviewing your financial planning. The first step is to acknowledge where you are currently and then decide where you want to be in the next 12 months: what is your dream? The next step, of course, is to figure out how to budget to make that dream a reality. I always recommend creating your own personal financial plan. Of course, if you are part of a family, then this will be a family financial plan! Why not teach the whole family how to budget!
Hi, I’m Anna Goodwin, your friendly finance mentor. With over 30 years of experience, I know it’s important for individuals and businesses to understand how to budget and take control of their finances.
In order to plan, you will need to firstly set goals.
Maybe you have a goal to:
- travel the world,
- retire early,
- own a home,
- start a family, or
- move or change career.
To achieve your goals and stick to your plan, remember:
- Your budget is key to success. It is the tool that will give you the most control of your financial future. Your budget can help you achieve the rest of your plan. Therefore it is essential that you learn how to budget.
- Use budgeting software or past expenses to get a starting point for your budget. You need to know where you are today before you can start planning for the future.
- Take the time to focus on your budget now. There is no better time to take control.
You may find my free personal finance pack useful. It will help you create your own personal 7-Step Action Plan to master your personal finances. You will also have the tools to list your expenses, the first step in learning how to budget.
How to budget
It will take a little effort, but it’s a great way to get a quick snapshot of the money you have coming in and going out.
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;
- able to spot areas where you can make savings; and
- in a great position to save up for a holiday, a new car, or another treat.
To get started on your budget, 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.
There are also 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?
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 keep 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 down all your spending.
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.
Life is unpredictable, we’ve seen this more than ever recently, haven’t we! 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.
You might get a pay rise, which means you can save more, or you might find your household bills increase. Recently, you may have noticed a reduction in travel costs, entertainment or spending on eating and drinking outside the house.
Once you get the hang of tracking your expenses, you can try using a service like Mint to manage it for you https://www.mint.co.uk/
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 then wonder why you never hit your goals.
So take the time now to capitalise on the skills you have most likely had to develop during this pandemic. You may have noticed that because you have had so many restrictions that you have saved more and decreased your monthly spending. Could you try and continue this, to some degree, as you move forward. Good luck!
Next time, I will concentrate on successful business planning.
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