Financial services with the human touch from Fair Finance...
Do you worry about anything to do with money? If so, it comes as no surprise to us at Fair Finance.
For starters, isn’t it always the way that you never ever seem to have enough money, whatever you do? Then everything about finance and all its related jargon just seems so complicated. And even when you decide - every now and again - that it’s time to really start getting your finances sorted once and for all, you soon feel like giving up because it’s all just too scary and intimidating.
If this describes you, you are not alone. Recent research indicates that 77% of UK residents are stressed about money, with 14% saying they worry about money every single day.
And that was before Covid-19 came along!
But you don’t have to go on feeling like this. There are ways you can begin to get in control of your money. We will look at some of these in our next few articles. Today we are going to start with how to make a budget. And stick to it.
Why is it important to have a budget?
You’re probably familiar with the idea of budgets, whether it’s government or local council budgets, a business you work for or a club that you belong to. A budget is simply an estimate of income (money coming in) and expenditure (money going out).
But did you know that if you do not have a budget for your own money then this could mean that you end up in a financial mess?
Most of us tend to keep spending money until we run out of it. Then we panic and look for other ways to pay for what we need, often getting into debt in the process. A budget can help to prevent this happening, and ensure that we only spend the money we actually have.
Let’s take a closer look.
How to create a budget
The easiest way to start is by creating a budget for a typical month in your life. You can create your budget in a notebook or on a computer spreadsheet or by using an App such as Money Dashboard.
However you prefer to create your budget, you need to record all your income and all your expenditure. Income is the money you can rely on coming in, for example salaries, wages, allowances, benefits etc. Expenditure is everything you might spend money on. You do need to include everything to make sure that your budget is as accurate as possible. So a typical list of expenditure could include:
- Mortgage or rent
- Household bills - Council Tax, gas and electricity, water, phone/TV/broadband, insurances
- Debt repayment - loans and credit cards
- Food and drink
- Clothing and toiletries
- Car and transport
- Childcare and childrens’ activities
- Home maintenance and improvement
- Social and entertainment
- Personal care and fitness - gym, sports, hairdresser etc
Once you have done the above, you are beginning to form a picture of what your monthly income and expenditure should look like. But it’s always a good idea to test your budget over at least a couple of months. So keep a record of everything you spend for the first few weeks. You may find things that you have forgotten to include in your budget, or you may realise that you are spending a lot more on something than you had originally thought.
Also, as well as the regular monthly budget, there may currently be some months where you have additional expenses. For example there may be annual bills to pay, or birthdays, holidays or Christmas. So if this is the case, as well as your monthly budget you need a record of these additional expenses.
But wherever possible, try to spread your expenditure over a full 12 months. You can do this by setting up monthly direct debits for all your bills, and setting aside money each month for gifts and holidays rather than trying to find it all at once. By bringing everything onto a monthly basis, you will make it much easier to budget more accurately.
What if my budget doesn’t balance?
We’ve all probably heard the phrase “balance the books”. It’s at this point that it becomes relevant to us. You may well find that your budget doesn’t balance i.e. you have more money going out each month than you have coming in.
This is both bad and good news.
The bad news is that you are living beyond your means and unless you make some changes you are going to continue to slide into debt.
The good news is that you now know about this, so you are in a position to be able to do something about it.
Coming back to what we said earlier, because many of us are scared of anything to do with money, we can slip further and further into debt without really knowing why.
But now you do know. So what can you do?
Balancing your budget
Put simply, you have to ensure that your income is at least as much as your expenditure. Ideally higher, because then you can also start to build up some savings.
If you are not currently in this position, you need to either increase your income or reduce your expenditure. Or both.
So how can you do this? Let’s look at five ideas for each:
Increase your income
- Perhaps it’s time to try and find a job that pays more than you are currently earning? We are living in difficult times but there are still opportunities around so it is definitely worth looking.
- Consider also taking on a second job. There are a range of jobs that you can do from home on an occasional basis, check out sites like Upwork. Or see if you can either find - or make - any work opportunities locally, for example babysitting, pet sitting, house sitting, DIY or cleaning.
- Check whether there are any benefits to which you are entitled but you are not claiming. There are various benefits checkers to help you with this, for example Entitledto, Turn2us and Policy in Practice.
- Sell goods online. Whether these are items that you no longer need, or things that you have made, there are many opportunities to sell goods online. You could make a decent second income from this, and can earn up to £1000 this way without having to pay tax.
- Consider taking in a lodger. You can find more details about what this would involve on the Citizens Advice Bureau website.
Reduce your expenditure
- Check each and every item of expenditure in your monthly budget to make sure that you really do need to spend it. If you have gym or club memberships that you are not using, or insurances or warranties that you no longer need, then cancel them and stop wasting that money.
- Look into all your household bills to see if you can get a better deal on anything. For example you may be able to save money on your energy bills with the help of a website such as Uswitch or Money Supermarket.
- Plan your food shopping carefully so you don’t waste anything. Shop around for the best deals, buy supermarket own brands instead of more expensive labels, and batch cook so you can make two or more meals at the same time, as this works out much better value. Some people also find it helpful just to take cash with them when they do their food shopping so there is no opportunity to overspend on a card.
- Rather than spending a lot of money on buying skills such as car repairs, DIY, hairdressing etc. why not see if any of your friends are expert in these areas? If so, could you help each other out? For example, they maintain your car for you and you clean their house for them; or you cut their hair in return for them doing some DIY in your kitchen.
- When Covid restrictions ease and we are able to get out more, we will remember that it can be very expensive. So if you used to go out with friends every weekend, then in future perhaps make this every other weekend instead and do something in each others’ homes the weekend in between?
How to stick to your budget
So by now, if you have followed the above steps, you will have a reliable monthly budget and should hopefully have found a way to be able to balance the books.
The key thing now is not to become complacent. To remain financially healthy, you need to stick at this long term. Even if the immediate potential crisis is over, you need to keep your eye on the ball and make sure you continue to work to keep your finances under control.
So always shop around, always keep an eye open for offers, and when buying clothes and household goods always look for alternatives to purchasing from new. Charity shops, online sales sites and recycled goods can all be sources of great bargains, enabling you to get what you need at a fraction of the cost.
The good news is that if you do all the above, then you are already very much along the right lines. All you need to do is to keep going. And the longer you do it, the more natural you will find it. It will become a good habit to keep track of your finances and be careful about your spending. Far from being restrictive, it will actually be liberating because you will no longer be scared or stressed about money. You will feel in control.
How Fair Finance can help
We hope the information above helps you to start budgeting effectively and get back in control of your finances. And for any other financial need, then do get in touch with us at Fair Finance. We believe in providing financial services that also have the human touch, and give everyone a fair chance.
Check back here soon for more helpful financial and lifestyle tips from Fair Finance.