No matter what your age, setting up and sticking to a budget in your day-to-day life can offer a number of benefits. It can allow you to put more into savings, track and cut unnecessary spending, pay off debts, and more importantly, give you greater control of your money.
Pension advice specialist, Portafina shares tips on how to split up your income and understand what you have to work with, so you can get the most from your money.
Step 1: Understand your income
Sit down with a pen and paper or tablet and add up all of the money that you have coming in to your household each month, such as salary, interest from any savings, tax credits etc. This will help give you a full understanding of exactly how much money you have to spend each month and what your monthly budget is.
Step 2: Be clear about your outgoings
Next, take a look at your outgoings and list everything that you pay for over a month. Start by writing down the ‘essential’ payments. These are payments that you need to make on a regular basis: rent/mortgage, council tax, TV license, utilities, loan and credit card repayments etc. Don’t forget those bills that come every quarter, six months or annually. You will need to budget for these in the future.
Step 3: Review everyday spending
You should now have a sum of money that you have left over each month for everyday and occasional spending or saving.
It is best now to list all your other expenditures across a month, whether it's food, transport, eating out, gym membership and even Netflix membership – write everything down. If you are struggling to understand where your money goes, keep a ‘spending diary’ for a month – you’ll soon spot unnecessary expenses that can be stopped.
Step 4: Set a savings goal
Now you can look at how you can make short-term instant savings. Look at your spending. Are you paying out on things where you can in fact cut costs and save money? For instance, Are you using subscriptions to the full? Do you need that upgrade? Do you need that extra cup of coffee? Can you get your food cheaper? How essential is Sky Sports?
It is now time to set yourself a saving goal. Whatever your goal - be it a dream holiday, your pension or just saving for a rainy day - it's always a good idea to set some money aside if you can. Saving every month is a good habit that will benefit you no matter what your age. If you are looking to take savings seriously, book an appointment with a financial adviser or your bank to discuss savings options that will work for you.
Step 5: Try to keep on top of things
Just having a little more clarity on your financial situation, and the disposable income you have every month should take away some of the stresses associated with financial planning. Continue to budget and keep on top of this by refreshing your list every time you get a pay rise or an outgoing expense changes in size.
Jamie Smith-Thompson, managing director at Portafina, adds: “Budgeting is not just about pounds and pence - it also forces us to consider what is most important to us and how our incomes can help achieve current and future goals. It can have a highly positive impact on maximising money available in the “now” and open doors to saving in the future.
Once in the routine of budgeting, you may well be surprised how much more money you really do have available to spend, how much money you have available to save for future goals and for retirement.”