Making a budget is tricky, and sticking to it is more problematic. Everyone wants to keep finances in check, but it’s not always easy to carry it out.
Most people can follow some golden rules when making a budget and attempting to keep it within its limits.
1. Follow the 50, 30, 20 Rule
Experts say 50% of income should go towards needs like mortgage payments, groceries, and utilities. These are all unavoidable costs. Save 30% is for wants, such as desirable but non-essential subscription services. The remaining 20% is for savings or to clear any debts.
2. Use Spreadsheets
Some will always default to pen and paper, but an online spreadsheet is the best option for making a monthly budget plan. It’s more accurate, less prone to human error, and will handle all the calculations.
3. Set Targets
What are you budgeting for? Is there a big purchase on the horizon, such as a new car or a family wedding, or are you aiming to reduce debt? Whatever your situation, a budget is more effective when a plan is in place.
4. Include Everything
Is there something you’ve overlooked? Has a monthly Netflix subscription or a phone contract for your children flown under your radar? A budget can only work if you include everything, so remember to check your card and bank statements thoroughly when compiling your spreadsheet.
5. Remember to Update
Bills change constantly, and we must be aware of amendments. When utilities rise, subscription rates change, and weekly shopping costs increase, you must continue working so your budget reflects those extra outgoings.
6. Set Realistic Sums
Be realistic with your spending. Utility bills, mortgages, and rent are set sums at the start of each month, but shopping and car fuel costs are flexible. Don’t fall into the trap of reducing your variable outgoings to fit the budget. This will lead to problems.
7. Be Realistic With Income
As a self-employed worker, one mistake I make is being too ambitious with my income. I set unrealistic targets based on how many hours I can physically work in a day. If you’re on a fixed contract, this isn’t an issue, but unrealistic income goals can be a problem for the self-employed.
8. Earning Extra Income
If there’s a shortfall in your budget and you’re on a fixed salary, there are ways to boost your income. Getting a side hustle is an option, while all households should consider selling items they no longer need. Auction sites and local marketplace pages offer an ideal solution.
9. Check and Track Monthly
Return to your spreadsheet at the end of each month and check if you have hit the targets. If your income and expenses do not fit the original plan, this is the time to make adjustments ahead of the following month.
10. Automate Payments
Direct debits and standing orders mean you never have to make late payments. Getting all household utilities onto this platform is sensible unless you are 100% certain you are not missing a deadline. Late payments result in penalty charges, which will affect your budget plan.
11. Divide Annual Costs
The costs for more significant spending, such as an annual family vacation, cannot be spread over monthly payments. However, these should still be included in your monthly budget plan. If you know the likely cost or can make an educated guess, divide that by 12 and place the money into a savings account.
12. Review Your Outgoings
Now that you’ve listed all your expenses, it’s an excellent time to consider whether you can save money by switching providers. Keep track of all home and car insurance renewal dates to compare when they are due. Utilities and TV subscription packages may be flexible outside of a fixed contract.
13. Address Overspends
You should look at bills carefully if certain payments regularly exceed your allocation. Shopping and car fuel are the two most significant danger areas, but it’s possible to address them. Consider shopping at cheaper stores or see if you can cut down on some store cupboard regulars. Combine trips and take advantage of any loyalty programs to save on fuel.
14. Keep Receipts
When reviewing your budget at the end of each month, checking your card payments is an excellent way to ensure everything is in order. Keeping receipts means you can confidently challenge any unexpected entries or a charge that doesn’t align with your expenditure.
15. Build an Emergency Fund
Reducing debt is a priority, but building an emergency fund is essential. Even a tiny percentage within the 50, 30, 20 rule will help when unexpected repairs and emergencies appear. My recent minor traffic violation is a perfect example.
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