If you want to start the new year in good financial health then it’s important to get a proper budget in place sooner rather than later. When done properly, producing a budget can take a little bit of time – so we suggest getting it out of the way before the Christmas rush and New Year’s Eve fun have you forgetting all about it.
There are a few different styles of budgeting that you can try, but today we’re going to focus on ‘giving every penny a job’. This is a relatively simple budgeting method that can really help you maintain healthy finances over a longer period. It does require a little bit of prep work, but it’s worth it for the peace of mind that you’ll gain.
Calculate your true expenses
The key to this method of budgeting is to set money aside for all of your expenses each month – including those one-off payments that pop up annually (things like the MOT or Christmas presents). This saves you the headache of suddenly have to find hundreds of pounds at short notice, and stops you from raiding the savings account.
Make a list of your regular expenses, including treats and subscriptions such as Netflix as well as the essential food, bills and rent/mortgage payments. You’ll probably want to use a spreadsheet to record these, and you may need to look through your bank statements to get a good understanding of how much your spending, especially on things like food.
Then create a separate list of annual or semi-regular expenses. This might include costs associated with maintaining a vehicle, money that you spend on DIY or upgrading household tech, and birthday/Christmas presents. You could also consider how much you spend on treats like takeaways and days out over the course of the year.
Allocate your money to different categories
Once you have a clear summary of your spending, you can start ‘giving every penny a job’. This means deciding how much of your monthly income goes into each spending category. For the semi-regular expenses, take your annual spend and divide it by 12 to get an indication of how much you’ll need to set aside each month. Don’t forget to include savings and debt repayments on the list, too.
You could consider using an account such as Monzo that lets you split your money into different spending pots. This would allow you to keep your different categories of spending separate. It’s not essential, but it’s a good idea if you easily lose track of your spending.
This type of budgeting works best if you give yourself a little flexibility. The money set aside for each category is dictated by your own personal budget – so if you decide that you’d rather economise on your food shop one month so that you can afford some new clothes, that’s okay. Just adjust your spending categories accordingly.
This method of budgeting assumes that you’re not struggling with debt, or finding that you’re unable to cover your basic expenses each month. If either of those statements applies to you then consider getting professional advice from a charity such as StepChange.