Find Your Spending Leaks
Once you have created a written budget for your household, it is time to execute your spending plans for the month. This sounds easy, but this is typically where budgets fall apart. Your household needs to stick to the number allocated within each budget line item. This will take several months to perfect, however, as many people don’t actually realize how much they spend every month.
One helpful tip is to keep every single receipt for every item purchased for the month. At the end of the month, sit down and have a look at everything you have purchased. Most will be shocked when they realize they have spent £70 just going out for coffee. You might even be surprised at how often your household goes to the grocery store. In 2013, IGD, a global food and grocery research charity, discovered that 44 percent of Britons visit the grocery store more than once a week, while 14 percent shop every other day. IGD Shopper Insight Manager Michael Freedman, said that weekly shopping has been declining ever since 2008. Even if you’re just popping into the shop to get some fresh milk, most are tempted to grab a few other items as well, spending more than intended at the supermarket.
The latter you purchase every morning and frequent trips to the grocer are your budget leaks. In order to stick to your budget, you need to first find out where the leak is occurring. Keeping every receipt for the month will help identify your spending flaws.
Use Your Budget To Set Goals
Now many might consider their morning latte a necessity and not a budget leak, nevertheless, it’s important to allocate funds for this type of spending before the month begins. So if you absolutely have to have that double shot latte before work every morning, you need to put it into the budget so you know exactly where your money is going.
Creating a written budget is a way of setting financial goals for your household. For example, setting aside £200 a month for leisurely spending not only gives you control of your money but gives you something to work toward. If by the month’s end you spent £200 or under for leisure, you have achieved your goal. If you have gone over budget, then you need to take money from another category in your budget to make up for the difference. Not doing so leads to spending more than you earn.
Many financial planners propose budgets based on a percentage system. For example, some work on the basis of the 50-30-20 rule. Meaning, 50 percent of your budget should be allocated for required expenses like housing, food, utilities, and transport, 30 percent for leisure, and 20 percent for debt or savings. Using a percentage system is a way of setting financial goals.
The 50-30-20 rule may not necessarily work for each household, so it’s important to figure out what works for you. Again, it will take a few months of trial and error to discover the best system for your household. Regardless, budget goals are necessary. Remember, if you shoot for nothing, you will hit it every time.