It can be all too easy to think that budgeting is a bore. And if you’ve heard the same ‘top tips’ time and time again then we feel your pain. But don’t underestimate the power of a considered budget – if you’re able to stick to it, it can help you save for life goals and make you feel a little bit smugger for being at one with your finances.
That’s why Police Mutual has written our quick guide to budgeting. Call us financial feng shui masters, if you like…
What budgeting achieves
When done properly, a budget tells you what money you’ll have left at the end of each month and what you can afford to spend. If you currently spend more than your income a budget will flag this, so it could also act as a financial warning system to stop you from getting into the trap of spiralling debt.
Financial feng shui lessons:
1. Take a deep breath in, then exhale. Clear your mind of everything other than your finances. Ignore the mountain of clothes in the washing basket. Kiss that binge-watching-Netflix session goodbye for now.
2. You’re ready to start drafting your budget. Create a budget sheet, including a monthly forecast of your spending for the year, using bills and receipts from 2017 to help you. Use Excel or a similar table format as this can make things easier.
Remember to include amounts for any upcoming family events you know about (like weddings or birthdays) or any special occasions, and how much you think they’ll cost. It’s also good to include a contingency fund each month to help you cover any unexpected emergencies like a boiler repair.
If you’re self-employed, don’t forget to save amounts ready to cover your NI, VAT and other tax commitments for the year.
3. Don’t use simple categories like Shopping or Home.
Do break them down into specifics. For example, under Shopping you might have: ‘groceries’, ‘clothes’, ‘presents’. Under Home you could have ‘electricity bill’, ‘water bill’, ‘phone bill’ and ‘TV licence’ etc. This will help you get a real understanding of where your money goes.
4. If you spend different amounts each month on something – like your grocery shopping – take an average over three months to get a more accurate view. Just add up three months’ receipts and divide by three then use that amount for each month.
5. Spend a few hours adding costs to your budget, making sure it’s realistic. Put it to one side, sleep on it (not literally!), and then read through it a few days later to see if you’ve thought of anything to add. Alternatively, if you’re so inclined, try meditating while thinking it through, to see if you get further inspiration. It can’t hurt and we won’t judge.
6. When you can see how much you’re likely to spend each month, you can compare that figure to your income. Will you be in the red? Will you have to tighten the purse strings a bit? Or will you be sipping champagne in the Seychelles?
If the outlook isn’t great, there are steps you can take. Is your electricity bill looking a bit steep? Think about changing provider and getting a better deal. The same applies for your internet, phone contracts and, well, the list is endless. Not watching films as part of your TV package? Cancel or reduce parts of it to pocket some more money.
It can also be helpful to concentrate on budget categories for ‘Needs’ and ‘Wants’, to focus on your priorities and think differently. Could you walk to work or use public transport that would be cheaper than having a car? Are you getting a good deal on your mortgage or could you get a better deal?
Even if your budget looks comfortable, it’s never a bad idea to save money if you can. Then you can invest for the long-term or save it as a financial safety net.
7. Finally, most budgets don’t work! Controversial but true. To give your budget the best possible chance of being accurate you need to be honest. Do you buy a coffee every other day but don’t think it’s worth counting? Each of those coffees adds up. Do you get through yoga mats like there’s no tomorrow (while meditating about your budget perhaps)? Put it in. Only then can you see what you’re able to live without.
Dealing with debts
If after doing your budget you’re lucky enough to have money left at the end of every month then it’s worthwhile considering any debts you may have and create a plan to pay them off or put a little extra aside into your savings.
If you still owe money on more than one credit card or loan then a debt consolidation loan could come in handy. You can access our debt calculator to add up how much you owe and see if a personal loan could reduce your monthly outgoings.
If you’re already in debt and struggling to make ends meet it can have an impact on your mental and physical health as well as work and relationships. There’s no need to suffer alone! We’ve teamed up with PayPlan - an independent, FREE, debt management company - to offer you the support you need to regain control of your finances. Just call 0800 197 8433.
Maintaining financial peace of mind
Start January 2018 as you mean to go on! Don’t ‘budge’ the budget – become a financial feng shui pro by:
• Staying on top of your budget – stick to what you’ve calculated and keep an emergency fund
• Managing any debts you may have
• Reviewing your budget and updating your plan accordingly if your circumstances change (like a job move, new house, or a new addition to the family)
Article published on 17 January 2018
James Heaney is a Marketing Manager in the Brand team, responsible for PR and advertising. He is based at the Lichfield office, and likes skiing and writing for children in his spare time.Read more of James's articles