All about budgeting22 June, 2023
Why are you budgeting?
Most people will tell you it’s important to budget. But if you don’t have a clear reason in your head you’re unlikely to stick to it. So why are you budgeting? Is it to set aside money in case of emergency? Because you know there will be a big future expense and you are planning ahead? Because your money is tight and you need to make it work? Because your income is not enough to cover your expenses and you are trying to overspend as little as possible?
When figuring out what you can spend money on, Martin Lewis from Money Saving Expert recommends asking yourself the following questions.
It all depends on your means – can you afford to indulge yourself with the takeaway coffees you want to buy, or do you need to avoid walking past the café and smelling the coffee because you just can’t afford it right now?
Before you draw up a budget, it can be helpful to track your spending to see where your money is going. This can help you be more realistic as you can notice patterns in your spending. If your budget is unrealistically tight, you will find it hard to stick to and are more likely to give up. It can also help you get your spending under control because you can learn what to watch out for and when you need to be firm with yourself.
How much to save?
It depends on where you are in your life and what is important to you. It’s a good idea to think ahead in general – where do you want to be in the next year, 5 years, 10, 20…
Everyone has goals, whether they’re big or small, and it’s hard to separate money from what you want to achieve. Building money into your aspirations can help them become a reality.
It could be that you want a house, or to have children, or to retire soon. Whatever it is, once you have future goals, you can start planning for them financially as well. Saving for a mortgage, costs from children, and retirement, will make your goals possible and help you to live the life you want.
How to budget
There are many different ways to budget. Two common ones are:
1) allocate your money to essentials first, then see what you have left and split between disposable cash and savings.
2) split your income into percentages for different areas of expenses. This could be 50% needs, 30% wants, 20% savings.
Needs will include things like food, rent, bills, and council tax.
Wants could be gifts, holidays, celebrating life events like weddings and birthdays, or outings like meals out or gigs.
Once you’ve decided on your budget, some people recommend withdrawing your budget for the week in cash because physically holding the money can help you to stick within it.
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