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Budgeting is the cornerstone in any financial planning. You build all your dreams on your budget. It is the key to unlocking your future and staying in control.
But so many people don’t have one. They like to wing it! In my experience, this rarely works out well, even for the extremely wealthy.
Luckily for you, I am an expert budgeter and have weathered all the budgeting storms that have come my way to fine-tune my technique. Check out my top tips:
Know your spending
You can not prepare your budget if you have no idea where you are spending your money. Start by spending a minimum of a month (but preferably three) tracking your spending.
Once you have this information use it to inform how much you allocate to each category on your budget.
Think also about any items that haven’t come up on this month’s expenditure but will come up in the future, like birthdays, Christmas and MOTs.
Get a goal
What do you want your budget to achieve? You need to be clear on what you want your budget to do. Consider whether you want to save money, pay off debt or start investing.
This is useful information as you will want to have categories on your budget that help you reach these goals. Create categories for them and make sure that some money heads their way.
Prioritise your bills
When the time comes to actually allocate the cash, you’ve got make sure that the bills are covered. There are many resources online that tell you to pay yourself first, and while I agree with that you’ve got to cover the basics.
This will include things such as your rent/mortgage, electricity and gas bills and taxes. It DOES NOT include your Netflix subscription and your rampant Starbucks expenditure.
After the bills, you can go ahead and pay yourself, or in other words, stick some in savings and investments.
Be generous at first
It takes practice to get this right, so don’t be too strict on yourself at first. You need to give yourself a buffer in each category.
If you were spending £500 a month on food, it is highly unlikely that you will be able to reduce that down to £100 in the first month. Take incremental steps by going for £400 for a couple of months. Over time you can lower it as you adjust to your new normal.
Put every pound to work
Make sure that every pound that you earn gets a job in your budget. You don’t want to be left with a surplus on your budget.
After you have allocated out all your expenses, stick anything that is left towards one of your goals. This will remove the temptation to spend it on stuff you don’t need.
Therefore you need your budget to include categories for savings and investments too. Then you can fully distribute your money.
Get started creating your budget
What else do you need to get started with your budget? Let me know below and I will update this article with my answers.
Disclaimer: Remember the information you read here does not represent advice. Any ideas or suggestions are just that and may not work for you. Read the full disclaimer here.