The thought of budgeting your money on a monthly basis may be quite unappealing, but it’s an essential approach if you are struggling to manage your money effectively, considering making a life change – such as taking on a mortgage, or deciding how much you could start saving each month.
A good way to get started might be with a monthly budget calculator such as the one available online from ‘This is Money’.
Areas that you spend money on (bills, travel, rent, leisure etc) are broken down, and when added up you can see what percentage of your monthly wage is spent on each, and what, is left of your wage after these expenses are paid out:
This should have helped you take a rough look at what you spend and where it goes. Next, follow these four steps:
Categorise your Essential Expenses
The above calculator should have helped you do this. Decide on big categories first, then break it down into smaller ones – for example ‘bills’ into ‘council tax’, ‘water’, ‘phone bill’ etc. When you have worked out what your necessary expenses come to, you can see what you are left with each month for leisure activities, emergencies and saving
Work out what it is you actually spend on non-essential expenses
If managing your money isn’t your strong suit, keep a notepad with you for a week and record every single penny you spend can help you see where you’re going wrong.
For example, you might have only been factoring in your major supermarket shop as a food expense, when in fact you regularly spend £3.00 on a sandwich, 60p on a bag of crisps, or £2.50 on a coffee when you’re out and about.
Over a month these costs really add up, and could nearly double what you’re spending on a main food shop.
Decide how much you want to be spending on non-essentials
It’s important that we all reserve some money for treating ourselves and enjoying the time we have off work, but you probably want to avoid spending every penny you have enjoying yourself by the time it comes to the end of the month.
Ideally you will want to save money for emergencies, Christmas, holidays, and in the long term, your future.
Make your next step
If you have a quantity of money left over each month, great. It’s time to decide what to do with it. Look into possible investments – you could start adding to a pension scheme, save for a mortgage, or create savings of some other kind. Perhaps open an ISA if you don’t have one already.
If your outgoings each month exceed your earnings, it’s time to take a serious look at your finances. Look at moving to a cheaper place if you’re renting, or consider how you can cut back on spending in your leisure time.