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A budgeting guide for everyone

Seven easy tips for everyday money management

Finances are different for everyone, but there are some tips that work for us all – let’s explore some of them. 

Put simply, a budget is a way of keeping an eye on your money to make sure you can achieve your goals without spending more than you earn. Usually, you’ll need to list both your income and expenses to help you manage your money better.

1. What’s your income?

To plan your budget, one of the first things you’ll need to do is work out your take-home income. Most people know how much they earn, but it’s your take-home pay you need to think about; that’s the money you receive after tax and other deductions. You can find this on your payslip or through your employer.

If you’ve got any other consistent streams of income, such as rental income or another job, include those too, as it’ll make your budget more accurate.

2. Add up your spending

Where’s your money going each month? Itemise all your regular spending – ‘needs’ first, then ‘wants’ after. Once you’ve worked out how much you earn and how much you spend, find the difference and see how much money you have left over. If you’re spending more than you’re earning, find out how to create healthy spending habits here.

3. Distinguishing between ‘needs’ and ‘wants’

Needs could be bills, debt repayments and other essential living costs, while wants might be things like eating out, holidays and new gadgets. Needs and wants can overlap, and it’s easy to lose sight of the difference between the two. For instance, we need housing, but we might want a larger home in a more desirable location; we need food, but we want to eat at a restaurant.

Have a look through some of your expenses, and work out which ones fall in each category. To help, ask yourself whether you need it to survive, or whether it’s something to make your way of living more enjoyable. If you need to reduce your spending, the ‘wants’ are where to start looking for changes you can make.

4. Debts v savings

Typically, it’s good to use some of your earnings to repay any debts you might have as well as trying to add to your savings each month.

Most lenders charge interest on any money you borrow from them. This means you repay a larger amount than you borrowed and the longer you take to pay the money back, the higher the amount you’ll pay in interest. So in most cases, it’s best to prioritise paying down debts before saving – particularly short term, higher cost borrowing such as credit cards and your overdraft.

Savings are great for avoiding the stress of last-minute expenses and becoming a bit more financially comfortable. If possible, try and set some cash aside wherever you can. Pick an amount you’re comfortable with, and adjust it according to your budget.

5. Be realistic

Sometimes, setting unrealistic goals means you end up worse off than before. For example, saving half of your income would help you achieve a savings goal in a shorter time. That may be ideal, but If that meant you couldn’t pay back costly debts and you couldn’t cover your essential bills, it wouldn’t be practical.

There’s a popular budgeting rule called the ‘50/30/20’ rule, where 50% of your income would go towards your needs, such as bills; 30% towards your wants, like holidays; and 20% towards your savings. While this is a well-known technique, it might not work for you – and that’s okay. Your budget should work for you, not the other way around. It doesn’t matter if you find yourself spending or saving more (or less) than others – the important part is that you can afford what you do.

6. Track your spending and progress

Another significant part of budgeting is maintenance. Things change – expenses go up and down all the time, and you may get a new job with a different salary.

It’s important to monitor your spending. You can do this through some mobile banking apps, such as the Barclays app, or budgeting apps that work alongside your bank accounts and track your purchases.

If you think there’s something that would affect your overall budgeting progress, it’s probably worth having another look at what you’ve worked out and what you need to change.

7. Don't ignore your bills

It’s really important not to ignore bills, even if you’re worried about your money because of the coronavirus situation.

You could

  • Check your insurance policies – you might have some that cover your mortgage payments or replace some of your income
  • Speak to your landlord – landlords with buy-to-let mortgages can apply for a payment holiday for them, which often means they could have to give you a rental payment holiday too
  • Contact your local council – they might be able to give you a payment holiday or lower your council tax, if you’re eligible
  • Speak to your energy supplier – if you have a pre-payment card and you can’t top up, they might be able to help
  • Contact your water supplier – all water companies in England and Wales are offering help during coronavirus
  • Speak to your phone or internet provider – they might be able to help with your bills during coronavirus, and they’ll make sure you’re treated fairly
  • Contact your car finance company – they’re required to give you payment holidays and other support, depending on your situation
  • Pause your TV subscriptions – check if you’re under contract, and if you’re not, you could pause or stop your non-essential TV subscriptions, for now

If you need more information, you should talk to the company who sent the bill.

So now what?

Create a clear-cut budget that works best for you. As you itemise your income and outgoings, remember that everyone’s situation is different; for instance, your spending might need to be altered depending on your income.

If you’re not sure where to start, Money Advice Service has an online budget planner. You could also get in touch with your bank for support on managing your money.

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