How To Start Budgeting And My Tips For Success: SIMON LAMBERT

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Do you have a budget? Even if you think you’ve thought about your finances or the country’s finances enough lately, let me make the case for doing a little more.

Sorting out your household budget and understanding what goes in and out is the cornerstone of charting a richer future.

Pros and cons: Controlling your household budget is the key to financial success

Since the cost of seemingly everything is increasing substantially, it is also more important than it has been in years.

This is especially important for anyone who is worried about increasing payments when their fixed rate mortgage ends; many face paying hundreds of pounds a month more.

Controlling your budget, creating a reserve, and preparing for those potentially large additional expenses now is a much better plan than simply waiting until they arrive.

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It’s also worth saying that budgeting is something almost everyone should do.

Low-income earners and lower-income pensioners are the people really facing a cost-of-living crisis, but for many higher up the scale, the situation has gone from a nuisance to a serious loss. of their resources that is having an impact on their lifestyles. .

Middle-income earners are likely to face a much bigger struggle balancing the books, and since people tend to spend within their means, I imagine many high-income earners will too.

I’ve certainly had conversations with quite a few people on five or six figure salaries who are worried about mortgages and rising bills.

If you are having trouble paying your bills, it is important to try to get help. Read Citizens Advice’s guide on what to do if you’re struggling to pay your bills.

The benefits of a budget

By monitoring your budget, you’ll be able to determine where you’re spending too much, areas you could cut back on, opportunities to save on your bills, and where you could save money for enjoyment. – something I highly recommend trying to continue doing.

A budget also allows you to understand how much you could save or invest each month to build wealth.

And here’s where I feel the need to make a confession that will hopefully encourage you to budget if you don’t already, or lead you to admonish me and feel better if you do: I’m the editor of a financial website and I’m a bit useless when it comes to budgeting.

I’m not horrible. I try and the accounts tend to balance out roughly, but I wouldn’t say I have complete control over exactly where all my money goes.

You could say that while I’m no Kwasi Kwarteng, I’m no Jeremy Hunt either.

From conversations with other people, I know I’m not alone, so I suspect many will recognize this type of half-baked budget.

It’s wise to have a good idea of where our money goes, but many of us only have a vague idea of how much we spend and what it’s spent on.

How to start making a budget

The good news is that handling this should be easier than in the past, with the Internet and mobile banking putting account statements at your fingertips.

Ideally, to start the budgeting process you’ll need a few months’ worth of statements (probably at least six), so you average expenses and income to eliminate any anomalies, spikes, or things out of the ordinary.

You can search for them online, print them, or if you want to get geeky, you can export them to an Excel spreadsheet.

Armed with this information about your income and expenses, you can begin to calculate what your regular essential and discretionary spending is each month.

You’ll also need to collect information about non-regular but important expenses, such as annual car or home insurance paid in full, and what you spend on vacations each year.

Review and categorize your expenses, finding out what goes into monthly bills, essentials, shopping, travel, kids, socializing, etc.

You can do this in a spreadsheet, with pen and paper, use a budgeting app, or use Money’s family budget calculator, linked here and shown below.

Calculate what you can save

Admittedly, this may seem as fun as watching the latest Chancellor deliver another non-budget, but there is a reward in the end.

First, having a reasonable idea of where your money goes will make you feel more in control of your finances.

Secondly, if there are areas where you can save money or cut back a little, you will feel a little richer, and if you can save and invest every month, you will be much better off in the future. Use our long-term savings and investment calculator to calculate this and find the best savings rates in our tables or read our pick of the best investment platforms.

And reward yourself for budgeting.

And finally, I have one last piece of advice. Before you even start this process, think about something you’ll treat yourself to at the end: a takeout, a meal out, a nice bottle of wine, or anything you’d consider a little bonus. homework.

If you want to be financially savvy, try to save at least enough money to pay for it through your budget, or alternatively, don’t even worry about it and make it a reward for finally sticking to that budget.

> Use our family budget calculator and get budgeting tips

The 50/30/30 rule: can it help?

The 50/30/20 rule is a budgeting idea popularized by Elizabeth Warren, the American politician, in her book ‘All Your Worth: The Ultimate Lifetime Money Plan’.

The idea is that people should spend up to 50 percent of their after-tax income on their “necessities.”

Necessities are the bills and costs that are a necessity, such as mortgage, rent, insurance, essential transportation, food, energy, and utilities.

Next, 30 percent of after-tax income should go toward “wants.”

Wants are non-essential things like takeout, socializing, extra clothes, buying non-essential things, and more important things like vacations, new gadgets, or a new couch.

The remaining 20 percent is for future wealth, through savings and investments.

The pitfall with this approach is that many may discover that when they add up all their expenses, essential expenses account for more than 50 percent of their income and the total exceeds 100 percent.

My advice would be to add up all your expenses anyway, so you have an idea of your expenses, and then work to try to fit them into the model and even if the essential expenses exceed 50 percent, try to fit in at least a little bit in as much. in the desires category as well as in the savings category.

This calculator only works on the desktop and tablet version of This is Money.

Family budget calculator

Our family budget calculator lets you track exactly where money goes each month – the first step to cutting back. However, before using it, it makes sense to spend some time gathering the documents you will need, such as payslips, council tax bills, insurance policies and credit card bills.

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