First of all, why? Why is budgeting so important? Being aware of money coming in and going out of your bank account can stop you from overspending and getting into debt. It’ll also mean you know when you can have a little more freedom with your money and what you can afford to buy. Budgeting helps you to take control and can reduce money stress.
How to budget effectively
There are numerous ways for us to spend money - contactless and Apple Pay being two ways, making it even easier and more accessible for us to spend money quicker than ever before - it’s literally putting money at our fingertips. On top of that, we’re served multiple ads per day. As soon as we go online, there is a pull to spend money. Knowing how much you can and can’t spend per month is essential, so we know when to splurge and when to say no!
Where to start?
Start by calculating exactly how much money you have per month (after tax). Then, minus the definite from this amount, the things you spend on every month, such as your bills, rent/mortgage, average food shop, car and any debts.
Either use an app, a spreadsheet or a notebook and pen to work out the total amount you have left after deducting the essentials. Whilst doing this, it could be a great opportunity to review exactly how much you’re spending on bills and do a quick check on price comparison sites to make sure you’re getting these at the best deal.
Review your monthly spending
After reviewing your monthly bills, have a look at your general outgoings. Go through your banking app or statements and review what you’re spending your money on. This will give you a general awareness of where your money is going - for example, socialising, transport, eating out etc.
The results may shock you. If 40% of your income is going on ‘eating out’ without you realising it, this may be a spending habit you look to change in the future now that you are aware of it.
Reviewing your general spending will also help you budget what you need for the upcoming months. If you know you generally spend X amount of money; you can put this aside and look to put the rest into a savings pot to avoid going over and above.
Similarly, you may look to change some habits, reduce the amount of general spending per month, and increase your savings pot. However you choose to proceed is up to you, but the main thing is, you know where your money is going and what your spending habits are.
Plan for future plans
If you know you have an event, trip or day out planned in the future, factor this into your budget. So, for example, when deducting your bills from your total amount, also deduct an amount for your upcoming plans. Pop this into a separate pot, away from your available spending money.
By doing it this way, you’re ensuring you’ve factored it in at the beginning of the month/a few months prior and not leaving it until the last minute when you may not have the money anymore. This will stop you from having to find money or get last-minute loans and incur unnecessary costs.
Set yourself a goal
What do you want to achieve through your budget? Do you want to spend less on one thing and more on another? Do you want to save for something in the future? Define your goal and have it in mind at all times. If you get an urge to spend more money, you can assess it against your plan and figure out what’s more important. It will help you make informed decisions and think about your spending before going ahead.
Track your budget
Probably one of the most important steps, track your budget. You’ve initially set your budget doesn’t mean you’re sticking to it. Keep checking in and make sure you’re on track with what you’ve planned to spend that month.
If you’ve decided to cut back on the amount of money you spend eating out, have you done this? Do you need to amend plans to ensure you don’t exceed your target? And review your finances. If you’ve set yourself a budget and it isn’t really working, why? Is it something you can change?
We’re only human at the end of the day. We’re bound to come off the finance track now and again, but the important thing is that you’re aware of it and know what you need to do to stick within your budget. If you’re over on something else, you have your list of general spending and know that you’ll need to cut back on one of those things to make up for it.
Budgeting isn’t about getting it right 100% of the time. It’s about knowing where your money is going and what you need to do to stick to your goals to achieve what you want to achieve.
We hope this article on how to budget effectively was helpful. Established in 1996, The CPD Certification Service is the largest and leading independent Continuing Professional Development accreditation organisation working across all industry sectors.
