If you ask most members of the public, they would be able to tell you exactly how much money they earn each month, to the penny, but how many could answer correctly how much money they spend each month? Very few. This is why it is so important to have a written budget.
Write Down What Money Comes In And What Goes Out
As a rule of thumb, you should be writing a budget at the beginning of every month. It is so critically important to write it down on paper and track every expense you have. According to the Office for Budget Responsibility (OBR) said UK households are expected to spend £58bn more than they earn this year, rising to £68bn by the end of the decade. Is Britain addicted to debt? No. Britain is not doing a budget.
So here is how we get started. The best approach is to make a 0 based budget. By that, we mean income minus expenses equals 0. So every pound is assigned to a category. Firstly, list your total net income for the month. For the example below, we’ll use an average British salary of £2000. Next, list all of your monthly fixed expenses here is an example –
Obviously, every household budget will differ but this is just a general example of how your monthly budget should look. Notice that Savings is listed as the first budget line item. Most peoples’ savings tactic is to save whatever is left over at the end of the month. However, if you aren’t doing a written budget, there usually isn’t any money leftover and nothing goes into savings. That is why it’s so important to allocate a realistic amount for saving at the beginning of the month. To resist the urge to spend and make saving easier, you can contact your bank and create a direct debit to take money out of your current account to be deposited into a savings account at each payday.
Tell Your Money Where To Go
By itemizing each of your monthly expenses, you will be able to plan accordingly for each month. It sounds so basic, but most people don’t have a written plan, which is why most spend beyond their means. Most people get to the months end and can’t figure out where their money went. A written budget gives you the control to tell your money where to go. When you take control of your money, track every pound and direct it where to go, you will feel like you’ve gotten a raise.
However, writing your budget is just the first step. The second step is to stick to your budget through constant monitoring and discipline. It generally takes a few months for each household to determine accurate figures for each budget line item. It’s also important to remember that your budget will change every single month, hence why it is so important to create a written plan at the beginning of each month.
In the next instalment, we will go through every budget line item and discuss how to reduce your monthly cost of food, utilities, and even your monthly mortgage and rent payment.
Feels like you got a raise.