Recent research has shown that the amount of available cash we see in our bank accounts directly impacts our happiness.
In fact, the Harvard Business Review identified a 15% increase in life satisfaction for those with at least $500 in their bank accounts. Whilst this is an American survey, It’s not unreasonable to expect the effects to be the same in UK.
Managing money isn’t always easy. Having a budget is a good place for you to start as it helps you understand how much money you receive, how much you spend and ultimately enables you stay in control of your finances.
It is also the foundation of achieving long term aspirations such a debt freedom or buying a house.
Having a budget has some welcome side effects. When you budget, you are:
- Less likely to be in debt
- Less likely to be surprised by unexpected costs
- More likely to have a good credit rating
- More likely to be accepted for a mortgage or loan
- Able to spot areas where you can make savings
- In a great position to save up for the nice things in life, like a holiday, a new car, or something else.
In this article we discuss money management tips so that you can set up a budget, stick to it and maybe even save some spare cash.
How to set up a budget
Creating a budget is the first step to taking control of your finances. It takes a bit of effort, but once it’s done, you have a good overview of the money coming into your household and the money leaving it.
To get started, you need to store the information you gather. There are a few ways you can do this.
- Good old-fashioned pen and paper
- A spreadsheet. You can download our budget template here and see a video of how it works
- An app. Your bank may even have a tool that comes with your account
Then you need to understand what money you are receiving into your household, such as:
- Your earnings
- Government benefits
- Rental property income
And finally, you need to know what you’re spending your money on, so go and grab a bank statement. You’re looking to work out how much you spend on:
- Household bills
- Living costs
- Financial products
- Travel
- Leisure and entertainment
Yearly big spends
A common mistake people make is to forget about the one-off expenses that happen each year. If you’ve not budgeted for these events and get caught out, you’re likely to reach for the credit card or get a loan to pay. This is where debt can begin and can spiral out of control.
The typical yearly ‘big spends’ could be:
- Vehicle
- Servicing
- Insurance
- Tax
- Holiday
- Christmas
- Birthdays
Your vehicles need to be serviced, insured and taxed each year. And while you don’t have a crystal ball to predict the exact amount, you can make a pretty accurate guess.
For these yearly big spends, make your best estimate as to how much you think you might spend and divide that number by 12. Each month move that amount of money into a savings account. Hopefully, by the time the car service is due, there will be enough money, or at least a good proportion of it put to one side, ready to pay the bill.
It may take a while to build up to having the money set aside for all your big yearly expenses, as often you incur these costs throughout the year.
The first year you do this maybe tough, as it will feel like you’re paying twice. Don’t let this put you off. Once you start reserving your money and get to year two, you’ll have that cash to hand when you need it.
“Help, my expenses are more than my income!”
Now that you’ve got all of the information into your budget, it’s time to look at your position. Do you earn more than you spend, or do you spend more than you earn?
If you earn more than you spend, great! Now it’s time to think about saving for the future.
But if you spend more than you earn, it’s time for some serious thinking.
To begin moving the needle out of the red and back into the black, take a look at your non-essential spending. Can this be reigned in? You can make some simple lifestyle changes that add up to a significant cut in spending. For example:
- Could you make your lunch at home to take to work?
- Could you cancel a gym membership you no longer use?
- Do you like a barista coffee? Do you need so many?
- Do you really need all those streaming services?
This is the ‘Costa Coffee’ effect: A regular latte costs £2.30. If you buy one every day, you’ll be spending up to £839.50 a year, just on coffee. Costa will love you for this, but less so your bank account. That money could be used towards a holiday or Christmas.
Why budgets fail and how to make yours a success
A wise man once said, “the road to hell is paved with good intention”. It’s not enough to have good intent, it has to be followed up by action. So, what actions should you take to give yourself the best chance of success with your budgeting endeavours?
Don’t forget your budget once it’s done. Here’s the scenario…
It’s the last day of the month, pay day is tomorrow, so you think you’d better sort your budget out. You crunch the numbers and things are looking good. As the month progresses, you forget to check in with your budget and you accidentally overspend. You need to live your budget and use it to help you make decisions.
A budget isn’t meant to be a static document. It is meant to evolve as the month goes by. It’s there to inform you if you’re on track or if you’re in danger of overspending. Keep checking in with your budget on a regular basis and it’ll help you make informed decisions about how you’re spending your money. You need to live your budget and update it as and when things change.
Get your whole family involved. You need buy in from everyone. Sit down as a family and make a plan that you can all stick to. There’s no point in setting a budget if you’re the only person in your household who thinks it’s worthwhile. If you have a partner, they need to be on board. If you have kids, this is a great way of teaching them a useful life skill and introducing them to the value of money.
What next?
Make a start. Your financial future starts with a budget. So, pop the kettle on, make yourself a brew, pull out the paperwork, choose your budgeting tool and start plumbing in the numbers. You’ll thank yourself once you have.
And don’t forget you can use the free Stag Protect budgeting tool.
Share this article
Regulatory Details
Stag Protect is a trading style of Batsrock Financial Ltd (company number 11755118) which is an Appointed Representative of Andrews Risk Consulting. Andrews Risk Consulting is a trading style of Stuart Andrews who is authorised and regulated by the Financial Conduct Authority (FCA Number: 820518)
Important Info
Contains public sector information licensed under the Open Government Licence v3.0.
© Copyright – Stag Protect
Our Contact Info
03333 447 472
Info@Stagprotect.com
21-22 Bath St, Frome, BA11 1DJ