Spending and Budgeting
Posted by siteadmin on Friday 13th of December 2019.
Are you taking responsibility of your spending?
Taking responsibility of your spending means living within your means and not spending money you can’t really afford. Essentially, this comes down to making sure you have less outgoings than your net income to ensure that all financial responsibilities, such as bills and other necessities, are taken care of.
Being financially responsible doesn’t mean you can’t spend your hard-earned money. It’s still possible to spend money on things you enjoy, the key is budgeting effectively. Plan firstly for your essential outgoings, then for your savings, then what’s left can be used on things you value or enjoy.
The importance of budgeting
Budgeting can help you to plan your outgoings, to see whether you can afford to spend money certain things while ensuring you have enough to cover your financial responsibilities. Budgets can also help you to keep out of debt and guide you as to how quickly you can pay off debt, if you are currently in arrears.
How to budget effectively
Senator Elizabeth Warren explains the 50/20/30 budget rule[i], which states that the basic rule for budgeting is to divide income – spending 50% on needs, 30% on wants and allocating 20% to savings. It may not be possible for everyone to save, depending on the individual financial situation, but this split is a good start to creating a realistic budget.
The steps to creating a budget centre around determining your income, identifying your fixed financial responsibilities and recognising your variable expenses (spends that can differ).
There is no ‘one size fits all’ when it comes to budgeting, but here’s a starter for ten for when you’re thinking about creating your own, effective budget:
1. Establish your income
The first step to budgeting is to establish how much money you will have each month. If you have a variable income, such as working on commission or freelance, you will need to manage your irregular income carefully.
By understanding exactly how much money you have coming in each month, you can determine how much you can afford to spend more effectively.
2. Identifying fixed financial responsibilities
‘Fixed financial responsibilities’ refer to the items that will not change from month to month. These might include rent, insurance or student loan repayments. If you can afford to save and you’d like to put a regular amount away each month, this should be included in your fixed financial responsibilities.
Once you can see all of your fixed financial responsibilities, you may be able to reduce some of these by spending time looking into new plan options.
3. Recognise your variable expenses
Once you’ve identified your fixed financial responsibilities, the amount that you can spend on variable expenses can then be determined. Variable expenses refer to the amounts that can change, including food shopping, leisure spend and clothing. It’s important to recognise your variable expenses, because it may be possible to cut back on how much you spend on these each month if needs be.
4. Compare your income to financial responsibilities
Ideally, you want to aim to create a budget where you have a cash surplus at the end of the month or week, to allow some room for unexpected expenses in your budget. If this isn’t possible, you should look to match your outgoings with your income.
Once you can see both your income and outgoings in once place, you can start to create a budget unique to your financial situation.
Being financially responsible and creating a budget is essential in helping you to take charge of your money and be prepared for any challenges that you may face regarding finances.
If you would like to find out more about how you can take responsibility for your spending each month, please get in touch please get in touch using our General Enquiry form.
Everyone deserves to have a smooth journey to financial security, let us help you to achieve yours.
[i] All Your Worth: The Ultimate Lifetime Money Plan by Amelia Warren Tyagi and Elizabeth Warren