It’s an interesting (or anxious) time at the moment- with UK officially in a recession, it’s hard not to feel the pinch. Sky news recently reported how badly the UK to hurt from the Coronavirus recession.
People are already getting laid off and businesses are feeling the pressure.
Now is the time to take another look at our budgets to ensure that our families have the basics (and luxuries) that we would like. Being in debt is no fun (been there, got the t-shirt). It’s always so much better to live life with all the freedom one can have. A budget can help us do that.
So let’s take a high level look at creating a budget in 7 easy steps
Step 1: List down your “realistic” goals
Making a list of goals will help you to with smart spending choices. Do you want to travel (pending restrictions of course)? Buy a House? Renovate the house? How do you want your finances to look in 6 months? Decide on your priorities and visualise your target.
Step 2: Identifying your Income and Expenses
Many financial experts recommend having at least 3 months savings in your account. Depending on your risk appetite- you may want to have 6 months savings instead.
Perhaps create a simple excel spreadsheet- add a column for income and another column for outgoings. Be honest with it otherwise you’re just kidding yourself.
Perhaps put the expenses in order of priority to help you see what can be reduced.
Step 3: Separate Needs and Wants
You need to ask yourself: Do I want this or do I need it? Can I live without this? If you need to purchase something, and you really need it, come back in 24 hours to buy it, and if you don’t think about it, it’s just a want and you are buying because of the momentum.
Step 4: Design Your Budget
Do not spend more than what you make. Credit card installments are added expenses especially if it’s an impulse buy. Pay your bills first and allocate a small budget for yourself.
Step 5: Put Your Plan into Action
Once you’ve created your plan, start allocating money for any monthly debts, bills, savings, entertainment, and personal expenses. Do not rely on credit to pay your living expenses. I have heard people do this and this is not a sustainable way of living.
Step 6: Seasonal Expenses
The expenses that “comes up” – like school expenses, vets bills, and memberships etc. Set aside money for these so you can afford it when needed and not go in debt.
Step 7: Look Ahead
Check how are you doing in a month or two. Are you getting near your goal? Are you doing any progress? Small progress is still progress. If you are having a hard time, just ask for help.
I’m a little bit of Microsoft Excel fan and so jump at any opportunity to create a budget! You don’t need to be good at spreadsheets to really think about a sensible budget. Spreadsheet/Pen and paper/painting/app/video- however you decide to record it, make sure you understand it and use it to help you manage your budget.
Once you’ve done it, you can then reward yourself with a little treat- within budget of course!
Money Saving Expert has a detailed budget tool if you would like to get some ideas.
1 thought on “7 Easy steps to an effective budget”
Lots of great tips here, thank you.