Your guide to budgeting

So you’ve decided to take control of your finances with a budget.

That’s great news as you’ve taken the first step on the path to financial freedom.

Firstly, budgeting apps are available that can automatically calculate your income and expenses as well as collate all your financial information in one place so check my picks of the best budgeting apps in the UK.

However, if you would prefer to create a budget manually, here’s a simple step-by-step approach that takes everything into consideration:

• Step 1: Calculate your net income

Your net income is the total amount you bring home each month after tax.

• Step 2: Identify your expenses

It’s key to understand exactly what ongoing costs are due each month. Mortgage, insurance, loan repayments, and subscriptions should all be found as fixed expenses. Then there are variable expenses which include groceries, and utilities.

Budgeting apps such as Snoop and Yolt will automatically achieve this on your behalf, categorising all your expenses and identifying where your money is going.

• Step 3: Set monthly limits for fixed and variable subscriptions

Be realistic so you don’t set yourself up for failure. You may find that you need to make adjustments along the way.

• Step 4: Start saving

Aim to put 20% of your net income into a high-interest savings account. This can be the start of building your emergency savings account, however, it is always advisable to pay off any outstanding debt first.

• Step 5: Track your spending and adjust where necessary

This is where budgeting apps come in handy. They will send out little alerts when you are getting close to your monthly or weekly budget and let you know the areas where you appear to be overspending. This can help keep you on track. Check our list of the best budgeting apps in the UK.

The 50/30/20 rule

One of the most successful budgeting rules is the 50/30/20 rule.

Once you have identified your expenses, see if you can fit your monthly net income into the following categories:

• 50% for fixed and variable expenses – these are your NEEDS
• 30% for entertainment – these are your WANTS
• 20% for savings – this includes building an emergency fund and paying off any debt

It is possible for anyone to take control in this way. Make adjustments to suit your circumstances. See how this changes your monthly outlook.

Having a robust personal budget offers numerous benefits that can positively impact your financial well-being and overall quality of life. Here are some of the key advantages:

• Gain control of your finances

Knowing where your money is going is the key to avoiding unnecessary expenditure.

Improved mental and physical health as well as less strain on relationships.

• Achieve your financial goals

Repaying your debts can pave the way for long-term savings goals and avoid spending money on interest.

Save for big purchases like a vacation, a home, or a car.

Build wealth with investments and pensions.

• Be prepared for emergencies

Everyone should have an emergency fund in case they lose their salary or encounter unexpected expenses. This can help avoid debt and the ensuing interest. Having at least 3 months’ salary in a high-interest, easy-access savings account as an emergency fund is usually advisable.

• Make improvements to spending habits

Intentional spending can be achieved via a budget, helping you to focus on the spending that matters.

A budget can help avoid impulse purchases that you later regret.

• Plan for your future

A budget can help you plan for your retirement effectively.
You can prepare for future costs such as education or relocating.

• Achieve greater flexibility

A good budget can help identify where adjustments are required should your financial situation change.

Planning financially for wants, as well as needs, can give you the freedom to enjoy life without worrying about your financial future.

• Stop fighting about money

Having a budget that you agree to and work towards together can help strengthen your relationship and halt quarrels about money.

Communication around money is also an important part of a healthy relationship.

• Achieve financial discipline

Regular budget reviews can help keep you accountable for your spending and ensure you stay on track.

A budget can help build good financial habits.

Anything we haven’t covered? Get in contact and let us know.