Budget not bust
Need to start keeping a better check on your spending? VICKY SHAW gets expert advice
WHEN people are looking to get their finances into shape, the first piece of advice they’re often given is: ‘Make a budget.’ Sounds simple enough – but is it really? With many people looking for a fresh financial start for the new year, getting this crucial piece of money management wrong could see them fall at the first hurdle.
So, how can you transform your budgeting skills to get on top of your finances for 2018? Here, Steve Nowottny, news and features editor at MoneySavingExpert.com, shares some expert insights and top tips...
WHY IS MAKING A BUDGET SO IMPORTANT?
STEVE says budgets answer fundamental questions. “’Do I spend more than I earn?’, is probably a question that everyone should be able to answer,” he says, adding that there’s an element of being honest with yourself – and it can be an almost “emotional process” to sit down and properly go through your spending. “Once you’ve got a really accurate budget,” says Steve, “you can do something about it if you do have financial problems.”
WHAT IF DOING A BUDGET JUST SOUNDS TOO COMPLICATED?
EVEN if it’s not perfect, doing some kind of budget is important and better than not having one at all. “While you should do the most accurate budget you can, if that puts you off and you’re daunted, try and do some kind of budget.”
SO HOW CAN I GET STARTED?
BREAK spending into chunks. So, rather than just putting ‘travel’, include petrol, motor insurance and maintenance, for example. That way, you’ll get a more realistic picture of exactly where your money is going. This also makes it easier to do a final ‘sense check’ to make sure each section looks accurate.
HOW CAN I WORK OUT HOW MUCH I SPEND?
RATHER than guessing, physical evidence, like receipts and bank statements, will show the difference between what you think you’re spending and what you’re actually forking out.
Steve says: “If you do that over a couple of months, you will get a feel for what you’re actually spending. It might be you estimate that you spend £400 or £200 on groceries in a month – and then you’ll find over time that actually, you’re not spending that, you’re spending more and you’ve got the receipts to prove it, and therefore you need to adjust your budget accordingly.”
WHAT PITFALLS SHOULD I WATCH OUT FOR?
WHILE many people may look at how much they spend over a month – this could mean they miss the big one-off spends, such as Christmas, holidays or a new car. Steve says bills paid annually, such as home insurance, may also end up getting forgotten about.
“However you do that, you want to make sure that you factor that in,” he says.
HOW OFTEN SHOULD I REVIEW MY BUDGET?
JUST as many people hit the gym at this time of year, they’re also going over their finances with the best of intentions. But, says Steve: “If you plan everything at the start of the year, it’s surprising how much things can change.”
Someone may go on a different holiday than planned, their childcare or utility bills could change or they could switch jobs, for example, which could all affect their finances. “If you can do it once a year then brilliant, but if you can do it more frequently you’ll feel more on top of it.”
WHAT IF I’M WORRIED THAT CUTTING BACK MY SPENDING WILL BE PAINFUL?
THE good news is there might be some ‘pain-free’ cutbacks. Steve suggests tackling ways you could be “leaking money” – such as shifting debt to cut borrowing costs ending unused subscriptions and switching to cheaper energy deals.
WHAT IF I DON’T HAVE DEBTS?
STEVE stresses that budgeting isn’t just for those who want to sort out debts.
“If you’re doing well, you should still be doing a budget. Firstly, it can eliminate waste and it gives you visibility of your finances,” he says. “It gives you an idea of what you can afford to do with your money.”