How to Budget Your Money & Harness Your Finances

how to budget your moneyDo you get that sinking feeling when you look at your bank account and realise it’s weeks until pay day? Or find yourself raiding the kids’ piggy banks at the end of the month? Yes? Then you need a plan.

Despite a reputation for blowing all our cash on handbags, a survey by Lovemoney.com found that women are better at controlling our spending than men. But the results also showed that over a third of all British adults don’t budget, using credit cards and overdrafts as a buffer.

So what’s the problem with budgeting or learning how to budget? Even the word ‘budget’ conjures up images of spreadsheets and living on a shoestring. Let’s face it: budgeting is boring. It means we can’t spend money, doesn’t it?

Wrong. Clever budgeting is all about spending. Knowing how much money you have means you know how much you have left to spend. So it’s not a budget but a ‘spending plan, which sounds infinitely better.

Why do I need a Budget or Spending Plan?

Ask yourself this question: do you spend more than you earn? If the answer is ‘yes’ then you are probably getting into debt each month. Debt costs money.

By having a financial plan you will see where your money is going. This makes it easier to cut costs and put more cash back in your pocket.

Debt costs money. By having a plan you will see where your money is going. Click To Tweet

How to Budget or Build a Spending Plan:

  1. Set aside an hour with no distractions. It’s a boring job but just one hour out of your life can save you money.
  2. Choose a way to display your earnings vs your outgoings, such as an Excel spreadsheet or an online tool like Money Saving Expert’s Budget Brain.
  3. Calculate your earnings after tax.
  4. Look at a snapshot of your bank statements. Enter all your outgoings in categories, down to the last cappuccino.
  5. Compare columns to calculate your overspend.

Budgeting Tips

Once you have a clear picture of your money, you can start to claw back control. Here are a few tips to help you get the most out of your plan:

Switch and Save

Switching your utilities, phone and broadband can save you hundreds of pounds each year. A Which? survey revealed half of UK consumers have never switched energy tariff.

A smart spending plan doesn’t mean cutting out life’s pleasures. One hour on a comparison site such as uSwitch can make a big difference to your cash flow.

Allow for One-offs

Include variable expenses in your plan so you know exactly how much you can spend on things like Christmas, car repairs and holidays. By setting aside money for one-offs you can avoid the inevitable reach for the credit card.

Harness Debt

We all know the story: use credit cards to cover extras = pay more in the long run. The average credit card debt for British women is £1,987. Shifting existing debt to a lower-rate card and paying it off every month will slash your debts significantly.

Save, Save, Save

After you have switched and slashed, you may have some extra cash to play with. Set up a direct debit and pay as much as you can afford into a savings account. Even a small monthly amount can add up to a holiday or pair of Jimmy Choos.

Keep a Spending Diary

It may not be Fifty Shades of Grey, but keeping a spending diary will help you stick to your plan. If you have a smart phone, the free Spendometer app lets you enter how much you are spending, then tells you how much you have left.

Get Thrifty

A poll by officebroker.com revealed that the typical UK worker spends £7.81 on shop-bought sandwiches, drinks and snacks every day. That’s £90,000 over an average working life.

Making your own sandwiches and taking your own coffee to work can save you over £100 a month. Also consider shifting down a brand on everything you buy and shopping at budget supermarkets like Lidl and Aldi.

Learning how to budget is being savvy about the money you have and the money you can spend. This will put you back in the driving seat of your finances, boosting your spending power.

Your Turn…

Do you have any budgeting or thrifty tips? We’d love to hear them, leave a comment in the box below!

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2 Comments

  1. I swear by YNAB (You Need a Budget), it’s a really great tool, and they use a great system as well, which you can use even if you don’t want to pay for their app. They don’t only focus on giving you a tool, they also teach you a whole new way of life.

  2. Hi Jenny, thank you very much for taking the time to share your comments and sharing your insight with us. I have heard great reviews about You Need a Budget (YNAB) particularly the zero based budget spreadsheet.

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