I MAY EARN MONEY OR PRODUCTS FROM THE COMPANIES MENTIONED IN THIS POST.
Budgeting can be tricky and can take a lot of time, but if you do it right, there is no reason why it shouldn’t work for you. Here are my 5 secrets to successful budgeting.
1) Have goals
One of the main reasons people fail when they begin to budget is that they believe some myths about budgeting such as “budgeting is for poor people”, “I’m too poor to budget”, or “I don’t actually need to budget”. But trust me, chance are you do need to budget.
But you also need to know why you should start a budget. Write down a few things you want to accomplish in the near, medium or long term. Here are some ideas:
-save £30 on eating out next month
-reduce by 5% grocery spending in the next three months
-pay down x amount of my debt in the next year
-build an emergency fund of x amount by y date
-buy a car in four years
-buy a house in 10 years
2) Keep it simple
Some people are comfortable with managing 40+ categories of expenses among six different savings and current accounts, but try to start slow and where you are comfortable. Here are the categories I suggest you start with:
Once you are comfortable with managing these for a while, see where you want to drill down. For instance, Enjoyment can be divided among dining out, lunch, club memberships, cinema & TV, gifts, etc.
3) Track your expenses
There are two ways you can do that: either use a tool that is directly connected to your accounts such as Mint or Money Dashboard. The upside: you don’t have to do anything: everything will be pre-categorised and automatically updated. The downside: you may not want to give your banking data to a third party.
The other way to track your expenses is to import your data into your own tool, in Excel (most banks allow you to export your statement in CSV or Excel format. Just copy and paste the data into your tool). The upside: you can set your spreadsheet up to receive the data as a copy paste, and your banking information is secure. Maintaining your own spreadsheet also mean you can have more flexibility. The downside: having your own tool and having to import the data manually takes more time.
Find whichever way you prefer and sit down regularly to review your expenses to make sure you are in line with your goals and your expectations.
4) Be flexible and be realistic
I have been reading a few articles about how other people budget and I found that very few talked about being realistic and flexible with budgeting. Here is how I see a budget: it should be a tool to help you have healthier personal finances. Don’t fall into the trap of “over-budgeting”: if you decide to cut down some expenses, be realistic in setting your goals and if you need to, set consecutive goals. It’s just like going to the gym: you need to train to achieve consistent results. Set manageable goals, adjust them if necessary, and don’t deprive yourself and your close ones of a night out just because the budget says so.
5) Cut down your expenses
Budgeting is about optimisation. Look for competitive offers on your bills: your electricity provider, your internet provider, your gym membership that you might not be using, the streaming service you barely use… In a few hours of tracking and research, you can reduce your expenses for the months to come.