Make 2018 the year you finally transform your budgeting skills
Need to start keeping a better check on your spending? Vicky Shaw seeks some expert advice
When people are looking to get their finances in shape, the first piece of advice they’re often given is to make a budget.
Sounds simple enough – but is it really? With many people looking for a fresh financial start in 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.
“You’re being forced to face up to your actual financial circumstances,” says Steve. “Once you’ve got a really accurate budget, you’re forced to stare it in the face and then you can do something about it if you do have financial problems.”
WHAT IF DOING A BUDGET JUST SOUNDS TOO COMPLICATED?
Steve says that, even if it’s not perfect, doing some kind of budget is important and better than not having one at all.
“While certainly you should do the most accurate budget you can, if that puts you off and you’re daunted, the first thing is try and do some kind of budget.”
SO HOW CAN I GET STARTED?
Steve suggests breaking spending down into chunks. So rather than just putting “travel”, this could include petrol, motor insurance and maintenance, for example.
That way, you’ll get a more realistic picture of everything you’re spending on and 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 period of a couple of months, you will get a good 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 in a month, this could mean they miss big oneoff 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?
Steve says that 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, he says: “If you plan everything out perfectly 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 by cancelling unused subscriptions, switching to cheaper energy deals and shifting debt to cut borrowing costs.
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.” For more advice, visit MoneySavingExpert.com