Last August, I posted my four top tips for successful budgeting and as we move (way too quickly) into a new year, I thought it might be useful to re-visit them. I really believe that budgeting and how to manage personal finances should be taught in schools; they’re important life skills that would make adult-life simpler and less stressful for a lot of people.
Over the years, I’ve worked part-time and full-time, been self-employed, been a mature student, owned my own flat, rented by myself, with friends and with a partner, saved up to go on holidays and to buy things I wanted, saved just to build up my savings, had to pay off credit card debt that I wish I hadn’t built up, had to pay out to get my car fixed, and so much more.
Successful budgeting has always been key to how I live, and I think I live pretty well.
So, these are my 4 super tips for successful budgeting:
- Make a list – all of your outgoings will fall into one of four categories:
- absolute necessities = everything you have to pay for (rent/mortgage, bills, insurance). These will tend to be fixed costs which you can’t vary or negotiate.
- flexible necessities = things you have to pay for but you can control how much you spend (groceries, travel – fuel for your car, bus or train ticket, taxis, I also include my gym membership and my Netflix and Spotify subscriptions in here as they are repeated monthly payments)
- luxuries = everything you want to pay for (new clothes, nights out, cinema, takeaways, beauty products – basically all the stuff we’d rather be spending our money on than bills, bills, bills)
- savings/debt payments = money you put aside for savings or use to pay off existing debts (eg. credit cards or student overdraft, because the banks won’t let you have it forever!)
- Follow a percentages rule – the 50/30/20 rule is a widely known budgeting concept but, realistically, with rent and the cost of living as it is, I go by a 65/20/15 breakdown. This means that from my total income (100%), 65% is allocated for necessities (absolute and flexible), 20% for luxuries and 15% for savings/debt payments. Regardless of whether I’ve been working part-time earning minimum wage or in a full-time role being paid a decent annual salary, I have always tried to maintain this rule. Using percentages gives you a clear idea of what you have to pay for each month and what you have left to spend how you want. With this, find the percentage split that works for you (based on your absolute and flexible necessities) and then stick to it.
- Use your diary – December is an expensive month for most of us with Christmas shopping, parties/nights out, and additional travel to spend time with loved ones but what about other times of the year? I have a unreasonably large number of family birthdays in April/May so I always keep that in mind when I want to spend money on other things during those months.
- Review regularly – your circumstances can change for many reasons. Maybe your salary amount has changed due to a new job or (hopefully) due to a pay rise; maybe you want to save a bit more towards a holiday; maybe your car had to go to the garage for unplanned work. Whatever the cause, you need to consider the impact it will have on your budget and you may need to change things up for a few months to help keep yourself on track and out of debt.
I’ve created a printable (with an example plan) to help you follow my super tips: click here to download it for free.
Here’s to a prosperous 2017!