Sometimes, it can feel like getting control of your spending habits is impossible. As soon as you think you’re on track for paying all of your bills and having some money left over for your savings, you’re hit with another unexpected bill. While it’s difficult to protect yourself from all of the things that can potentially go wrong with your finances, there are still steps that you can take to give yourself more control over your spending.
A personal spending budget gives you a strategy to follow when you’re not sure when you need to be saving, and when you can afford to splash a little extra cash. Here’s how you can create your spending plan in a few simple steps.
Know What Your Budget is For
A personal budget is more than just a way to keep your spending habits on track, it’s also a strategy that individuals can use to reach their short and long-term goals. While a commitment to smarter spending can be a great goal in itself, it’s also a great idea to give yourself something to aim for, as this will help to motivate you when you struggle to stick to your plan.
For instance, maybe you want to save up for a holiday with your family at the end of the year? Perhaps you want to find the cash to put a deposit down on a new home? Decide what you want to drive you towards your financial goals.
Know Your Income
Once you’ve set a (reasonable) goal for your personal spending budget, the next step is to make sure that you understand how much money you have to work with. If you’re creating your budget independently of your spouse or the rest of your family, then leave their income out of these calculations.
A good tip is to download an app that you can use to track your income from your bank account. This way, you’ll be able to have a complete overview of your money (down to the last penny), and you’ll have a way that you can track your spending too.
Understand Your Expenses
Now comes the difficult part of the personal budgeting process: coming to terms with your expenses. The chances are that if this is the first time you’ve started budgeting, you may be surprised by the number of regular expenses that you have to deal with. It’s not just utility bills and food that you have to pay for each month, but your broadband, petrol, car maintenance, work lunches, and countless other costs too. Don’t forget to think about your monthly debts and interest rates too. Hopefully, you did some comparison shopping before you got your loan to keep these expenses low.
A good way to make sure that you don’t miss any expenses, is to gather all of your bank statements from the last six months, and write down every out-going expense, including the small and irregular ones. Then divide the number you get by six to see your average monthly expenditure.
After you’ve got an insight into how much you spend each month, and how much you earn, you will hopefully be left with a portion of unallocated money. This is the cash that’s free for you to spend or use to meet your financial goals. If you don’t have any money left over, then it’s time to go back to your budgetdrawing board and see where you can cut down.
What’s Left After Bills?
Consider switching your gas and electric suppliers to see if you can save cash on your monthly bill or look for ways that you can reduce your spending on things like meals out and entertainment. Once you have your “flexible cash” number, it’s time to decide how you’re going to use it.
Give Yourself Some Wiggle Room Each Week
While it’s tempting to split your monthly left-over cash by four and use it however you like each week, that’s not necessarily the best way to use your personal budget. Instead, you should be thinking about how you can split the money that’s available to you into sections that deal with both what you want now, and what you want in the future.
We recommend having three different piles for your money, one can be the amount that you’re allowed to spend on frivolous items and “extras” each week. One pile can go towards your savings, and the last will be your “emergency” spending pile.