Do you hate to think about budgets or managing your money?
You are not alone my friend! It’s amazing how many people never check their bank account, don’t know how much they are spending on monthly groceries or bills every month, and convince themselves that it is better to bury their head in the sand, than to spend a few minutes doing a simple monthly budget and take control of their money.
If this sounds like you, you are definitely in the right place.
I usually keep my practical tips and my mindset tips as separate posts but this one covers both.
Because one of the best ways to Improve Your Money Mindset is to start reframing how you see simple words connected with money, like BUDGETS for example.
The word “Budget” fills some people with dread and they think of it along the lines of “Diet” (in other words, if you are avoiding a budget, you probably hear the word “budget” and think about all of the restrictions associated with that word).
And that makes you want to run away and spend money! Amiright?
But if you do it right, having a budget DOESN’T mean that you won’t be able to spend money, or even that you have to stop spending money on things that you enjoy.
I’m all for budgets, but I also want to enjoy life!
Having a monthly budget gives you an awareness of what you are spending, and how much money you have left in the pot, which helps you to feel more in control. It’s that simple.
People who think that they are ‘bad with money’ or have any similar negative beliefs about money, tend to stick their head in the sand when it comes to managing their money.
So they refuse to have a budget because they tell themselves it’s too hard, or too boring, or they think they won’t stick to it, and if they won’t stick to it, what’s the point! Right?
Does this sound like you?
If you are recognising yourself in any of this, it’s time to sit down and start reframing how you think about money. The easiest way to do that is to start figuring out exactly what is going in and out of your account each month.
Here is my quick guide of How To Do A Simple Monthly Budget.
Start by working out what money you have coming in each month.
What is your monthly pay? Don’t forget to include money that comes in that isn’t connected to your main job (for example regular earnings from selling your stuff on ebay, or any other money making activities that you can rely on each month).
Do you get any other regular payments, such as maintenance for a child, or regular state benefits, or a regular lump sum from an old investment.
However small or insignificant you think the amount is, list it all on your budget as “Income”.
Then list your monthly, unavoidable, expenses such as your mortgage/rent, your utility bills, debt payments etc. Make sure you don’t forget to include any of these regular payments by looking at your bank app (or bank statements if you’re old school, I won’t judge!)
Once you have all of the known expenses, you can start listing your unknown expenses.
These will be regular expenses, but the figure changes slightly every month (such as grocery shopping or fuel for your car) so you’ll need to estimate these. Go through your bank for the last 2 or 3 months and see how much you usually spend and just put down an average amount.
Always try to overestimate these amounts though, as you don’t want to be caught out with not enough money to cover them.
Then factor in all of the outgoings that are irregular such as a yearly house insurance payment.
OK, so you’re already done with the first stage and you barely felt a thing.
You now know all of your income and all of your regular expenses. Now you can go one step further and make your budget work for you.
Take any money that is left over from your basic income minus your regular expenses and start adding in a budget pot for your monthly “wants” such as hobbies, new clothes, travel, meals out with your mates etc.
** If you’re saving for something like a holiday, I find the easiest way to save short term is to have a 2nd bank account and put the money in there, until you are ready to use it. Don’t leave it in your main account or it will get eaten up **
The total of this amount (for your “wants”) should not come to more than 30% of your total income for the month.
If you’re spending more than 30% of your total income on your “wants” you may need to figure out a way to bring this total amount down, especially if you are in debt.
I’ll soon be writing a post about no spend date nights and weekends, so you’ll definitely need to keep an eye out for that!
The last stage is to start to put some of your money into a longer term savings account. I try to aim for 10% every month, but I don’t always hit that figure if I am also saving for a holiday or expensive course that I want to pay for.
This is money that you will not touch, so don’t be tempted to stick 30% in a savings account and then have to keep dipping into it every time you run low on funds.
The trick for longer term savings is to put it away in a completely separate account (preferably a higher interest one such as an ISA, that isn’t connected to your main account) and forget about it.
But wait, what about my debt?
If you’re struggling to get out of debt, you’ll want to flip this around and make sure that before you start allocating money to your “wants” fund, you pay off some debt.
And I don’t just mean the minimum payments – that should have been included at the ‘unavoidable expenses stage”! I’m talking about extra payments.
Before you even start your “wants” budget, make sure that EVERY MONTH you’re paying at least 10% more than the minimum payments on all of your debt.
If you don’t do this, you’ll never get out of debt. And yes, I do mean NEVER.
If you are struggling with money, try these related posts:
Why save for a rainy day when it’s raining NOW?
I’m not a financial expert but in my opinion you shouldn’t bother with a longer term savings plan until your debt is paid off. This excludes your mortgage, although you may want to consider making regular overpayments on that, instead of your money sitting in a savings account.
The interest rates are so low at the moment you’re better sticking to a plan of paying off your debt, rather than trying to save money in one account and having debt on a credit card – that’s crazy, it just doesn’t make sense.
Yes, keep a small ‘rainy day fund’ for emergencies if that makes you feel better about having no money in the bank, but that’s it. Everything else should go towards paying off your debt.
But remember, life is for living, so once you have allocated funds to your general living expenses AND you’ve paid of some extra debt payments, you can then spend the rest of your money on anything you want.
Go wild and buy that new pair of expensive shoes you’ve had your eye on for weeks, or treat yourself to a spa day, as long as the important stuff is covered AND you’ve paid off some of your debt, you’re good to go!
That’s it – your budget is done! See, it wasn’t that bad was it?
Doesn’t it feel great to be in control of your money for a change, rather than it controlling you?
I promised to keep it simple and it doesn’t get much simpler than this!
Let me know your thoughts (or your budgeting tips) in the comments.
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