Budgets- they just bring about thoughts of tracking every single penny, much like diets, oh- you can’t have that, can’t have that- etc. Tedious and brings back the notion of having no fun whatsoever. So- how can it be a good thing?
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What is a budget?
A budget is (usually) a self imposed limit on what you spend on various categories. It’s as simple as that- this is pretty much different for every single person, but it comes down to whatever income you have coming in, must be higher than your spending. If this is the wrong way around (you spend more than you earn), then you are getting into debt- even if you have savings, these will eventually reach zero and you will have nothing left!
Isn’t limiting what I spend really boring?
Not at all- but it all depends on how you manage this budget- if you mark £0 for takeaways, and actually you really enjoy them- and normally you would have one once a week, then by the end of the first month of your budget- you are going to be pretty bored. So….. don’t do this! If takeaways are important to you- put it in your budget! If you need to cut back in another area to afford these- then only you can tell if it’s worth it to you.
Hold on, I can budget for……. anything?
Yeap. Now, it might not be sensible to put a line in your budget for helicopter lessons if that means cutting back on food. However, if, instead you have a general “nice days out budget”- then you could save this for a few months and take that helicopter lesson to find out if it’s something that you want to pursue further (at quite considerable cost!).
So, just how detailed does a budget need to be?
That’s totally up to you- and what you will probably find is that your budget will start quite wide, I’d suggest (if possible) a budget of about 25% for “misc” items. As the months go by- you will notice that this gets used for yearly bills you have forgotten about (TV Licence, Taxing your car, Insurances). By the end of the first year, you should have a much better idea of your expenses as most of them should have occurred during this time period. However, you should always have an emergency fund- as there maybe unpredictable expenses that occur that you haven’t thought about- this could be fixing your car after mot, or a new boiler etc.
Just remember that budgets can change and adapt as your life changes- even month on month. If you currently rent, then you won’t ever have to worry about a leaking roof. But if you buy a house, you suddenly have many house maintenance items that are your responsibility that you do need to budget for. Now this might just be a budget line “House Maintenance”- it doesn’t have to be specific if you aren’t sure where it’s going to get spent. When the winter winds blow down your fence beyond repair- then this is the budget that you are then going to spend.
I’m still not liking all this tracking of my spending…
Well- the good news is that you aren’t alone, and there are a ton of solutions that you can use to make this slightly easier:
Google Sheets/Excel- old school, but with tons of flexibility, you can usually import data from your bank into a spreadsheet which you can then filter/select from
You Need A Budget (YNAB)- one of the leading programs to help you manage a budget (note: this is subscription based)
Plum– app that says it can help you save money/budget
MoneyDashboard- App/Web based budget tracker- currently free.
and more!- comment if you know of something else to be included here
What about saving?
Savings should be included in your budget. This might be short term savings (like the emergency fund mentioned above), an ISA or pension. These monthly (or yearly) amount should be in your budget so you ensure you are on track to save as you need for the future.
So, hopefully I have persuaded you, that actually, budgets can be free/liberating- because once you have budgeted all your bills etc, then the rest of the money is yours. Once you are in control of that, then you own money- money doesn’t own you. Don’t feel guilty about that lunch/dinner out- just take it out of your budget, you have saved for it.