The struggle to stay financially afloat every month is very, very real for many people out there. Whether it’s a big one-off cost to pay, ongoing debts or just the fact you can’t resist a good old spending spree, most of us are constantly counting down the days to payday.
Of course, if you asked them, most people would say they’d love to get on top of their finances — it’s just they either don’t know how to do so or can’t quite be bothered. Either way, it’s not an excuse for not sorting things out.
The first step towards financial stability is creating a budget. It’s simple to carry out and highly effective. In fact, it’s just four key steps.
Gather what paperwork you can
The first step to a solid budget is getting an understanding of expected monthly financial outgoings. The best way to do this is to gather together your bank and savings statements, utility and any other regular bills. Most of the information you need should be available online, via the likes of your mobile banking app, utility accounts and so on.
Establish your total income
This is a fairly simple step, as for most people it boils down to their monthly salary. If you do have any additional sources of income, for example, any work on the side, sale of possessions and the like, be realistic about what sort of consistent income you can expect. Calculate this number (use your net pay on your monthly payslip) to take forward into the next step.
Calculate your full monthly expenses
You need to come up with a list of all the expenses you expect across the month. These fall into two categories: fixed and variable.
Fixed expenses are consistent, regular outgoings like your rent/mortgage, payments on your car and utilities, credit card repayments and so on. Variable costs are the likes of groceries, fuel, social spending and any other expected costs that won’t be the same each month.
You can either estimate your variable expenses or take some time to record your spending behaviour. You want the variable figure to be as accurate as possible, as this is the category you’ll primarily be looking to modify.
Set some goals and identify savings areas to help achieve them
Once you have your monthly income and expense figures calculated, compare the two. Obviously, the basic aim is to have your outgoings lower than your income, but then it’s a case of what you do want to do with your money after that.
Setting financial goals will help keep you on the straight and narrow and give meaning to your budget. Think about what you want to achieve — do you want to save a certain sum per month, or pay off of some of your debt? Do you want to create a holiday or emergency fund?
Once you know what you want to do, go back to your budget. If you’re overspending against your income, the first priority is to get that under control. Then, once you’ve created a cash surplus on the month, you can focus on your goals.
Monitoring and adjusting your variable spending is the key to saving money. Your variables will likely include plenty of unnecessary expenditure – say, the morning coffee or buying lunch out – which you can make a conscious effort to reduce.
These tips should give you the starting blocks for better spending habits and overall money management. Drawing up a budget might be a bit old fashioned, but it remains one of the best ways to truly get on top of your finances.