We might know that we shouldn’t spend every penny we earn, but it takes willpower not to do so. If you get to the end of every month eagerly awaiting the next payday, it’s a sign that you could benefit from taking a look at how you budget. This is particularly true if you often find you dip into an overdraft or put purchases on a credit card as you near the end of the month.
Where is your money going?
Do you often look at your bank account and ask yourself: “Where has it all gone?”
It’s easy to forget about purchases and think you have more left from your salary than you do in reality. Forgetting about that lunch you put on your card or the impulse purchase you picked up when food shopping, can mean your disposable income is gone much faster than anticipated.
The first step to effective budgeting is to look at your spending habits now. There are a huge range of apps and tools that can help you categorise your spending, or you could use good old-fashioned pen and paper. Understanding where your money is going now is crucial for creating a budget.
Is your spending in line with how you intend to use your money?
Armed with knowing where your money is currently going, it’s time to look at this information objectively. You may find that your spending largely reflects your intentions. However, many people discover that their spending doesn’t reflect their plans entirely. Maybe you’re spending far more than you realised on picking up lunch at work, or the occasional taxi has turned into a weekly habit that’s adding up.
Even small costs can have a big impact when they’re frequent purchases. Occasional, frivolous buys from time to time can derail your intentions to improve your financial wellbeing too.
Present spending habits and your future
Now you understand where your money is going, it’s time to consider if your habits are in line with the financial future you want. Spending habits will inevitably have an impact on your future plan.
Could cutting back on your daily cup of coffee fund that weekend away you want to take? Perhaps reducing your monthly grocery shop can help you build a nest egg that will enable you to retire early. This step should be about balancing priorities and deciding what’s important to you.
Formulating a plan
With an idea of your financial goals, it’s time to use these to build a budget that suits you. It’s important to be honest and realistic here. Setting a goal of putting aside a sum each month into a savings account that isn’t possible could lead to you feeling demotivated and saving even less.
Using a budget calculator can help you isolate spending and recognise when you’re going off track. Setting goals, and regularly reviewing them, can help you gradually create the nest egg you want while meeting day-to-day financial commitments. The MoneyHelper budget planner can highlight where your money is going and offer personalised tips on getting the most out of your money.
If after budgeting, you still can’t balance the books, there is help available. Organisations such as Citizens Advice or the MoneyHelper are there to help.
This article is for information purposes only and does not constitute advice or a personalised recommendation.
Article last reviewed 25/03/2024.
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