Are your personal finances a bit, shall we say, challenging? Maybe you are worried about Brexit costing you your job, or perhaps you already have too much debt. This is how to set a realistic monthly budget in an easy-to-follow insider’s guide.
Money In, Money Out
Your monthly income is a given, but expenses can fluctuate. Record your expenses so you can get a realistic picture of where your money is actually going. Categorize your expenses according to:
1. Fixed Expenses – Steady, predictable costs that occur monthly like your mortgage or rent, utilities, mobile phone plan, auto loan, and so on. This category also includes any minimum payments due on credit cards or other loans.
2. Savings – If you put some aside every month for holidays or a rainy day fund record it in this category.
3. Random Expenses – This category is for expenses that happen once a year or once a quarter, such as children’s school fees, insurance premiums, car registration, and other non-monthly expenses.
4. Day-to-Day Expenses – Include entertainment, groceries, petrol, and other fluctuating expenses in this category. Limit your spending in this category using the formula: monthly income – fixed expenses / 4.3 = what you can spend each week in this category without breaking your budget.
Look at the Big Picture
Any solid budget has consideration for big-picture financial goals, such as paying off a mountain of debt or increasing pension contributions. Identify what these big-picture goals are and break them down to monthly increments. These should be noted in your monthly budget, but do not include more than two or three goals at one time. If you are unable to include these goals easily in your budget, along with your daily expenses, you may need to reduce your spending to improve your budget.
Tighten Your Belt
Outlining your monthly income and expenses can be eye-opening, especially when it comes to your regular expenses. You may be shocked at how much you spend on your utilities, for example. Even more shocking, most UK households are spending over £1,000 per year on gas and electricity, but it does not have to be that way. Switching energy tariff is one of the easiest ways to ease your monthly budget by spending less on your utilities, but many people are not in on this secret.
Almost two-thirds of homes in the UK get their energy from one of the Big Six suppliers, which is not usually the most economical option. If your home is on a standard, variable tariff, you could save money by switching suppliers, which is much easier than you think.
Just as you should not build a house without a blueprint, you should not forgo that all-important financial blueprint: a monthly budget. We hope you picked up some tips here.