Welcome to week three of our six-week challenge to help you make a positive change to your life. This week we are going to be looking at budgeting and how it can be a cornerstone to creating the life you want and achieving financial security.
What is a budget?
A budget is just a way of recording all your income and expenses regularly so that you can utilise your financial resources in a way that best serves your life.
You can easily see what funds you have each day, week, month or year to create the kind of life you want. Giving you the ability to divide up areas that you want to allocate money to, and ensure that you are not overspending. Giving you better control of your finances.
You can do this by using a simple spreadsheet or template. Or you may prefer to download an app on your phone. It doesn’t matter what means you use to set up and keep on top of your budget, as long as it’s something you will continue to use.
Download our free budgeting templates and guide here.
Benefits of budgeting
There are many benefits of setting up a budget and using it to manage your finances. Here are just some of the reasons you should be creating a budget:
It Gives You Control
If you’ve created a budget for yourself and you’re sticking to it, perhaps the first thing that you will notice next time you go shopping is that the purchases you make are intentional. You have gained control over your money by paying attention to the items you buy. The spontaneity of grabbing things you think you might need starts to slim down. You write lists before you leave the house and stick to the list instead of seeing what takes your fancy. You plan ahead.
You Become More Aware of Your Finances
One thing you’re unlikely to say if you’ve employed a budget is “Where did my money go this month?” because the more vigorous your budget, the less chance there is of your hard-earned cash slipping away. You know what finances you have at your disposal, and you can plan to either accommodate the costs of your guilty pleasures – a takeaway here and spontaneous night out there – or you can stick to a more disciplined routine where there is no leeway with the areas of your budget that you plan out.
Budgeting Eliminates Unnecessary Spending
Having sat down and figured out where your money is going, having sorted what you are willing and not willing to spend, now you can start whittling down what’s important to you, what your priorities really are and what you are prepared to give up (if anything!). Having everything written down paints a very distinct picture, one that you can make amendments to as things you don’t really want or need to spend money on start coming to the surface. It is then up to you to make the necessary changes to your budget, or to your lifestyle, though it does not need to be a ‘one or the other’ choice – you can blend the two for the results you desire.
Allows you to create a safety net
Knowing what you spend enables you to also see what you can set aside as savings regularly. Perhaps most important of any reason to start saving is for an emergency fund. Any unforeseen costs that might afflict you, such as a broken boiler, will be covered by the use of this emergency fund. Even the most intricate budgeter cannot predict the future, so having a fund that you can draw from if things take an unexpected turn is crucial to maintaining your finances.
Dreams Become Goals, Goals Become Achievements
Most dreams require some financial support. Having a budget means that you can see what income you have available to start funding those aims and stepping closer to your goals becoming a reality. Having goals will also help you to make financial decisions that align with the life you desire and eliminate those ad-hoc expenses that don’t provide any real benefit.
So let's get started and create a budget
It’s easy to get started with our top tips, and soon you will be on your way to financial independence.
Step 1 - Carry out a review
Do you know what you spent your money on last year?
Not just the big things like your mortgage or car insurance, but how much did your daily coffee cost you or are you spending hundreds on your food bill each month?
Take a look at the last month or two on your bank statements and make a list of where all your money went. If you know where you overspent last year, you can take steps to make savings this year.
Step 2 - Do an audit of your current position
Do you know how much income you have each month and what your outgoings are? If you did the review above, then you probably have a good idea.
You will also want to look at how much money you owe on credit cards and overdrafts. It’s easy just to pay the minimum payment each month and not actually consider what the total amount of debt you might have is. Make sure you also look at what the interest rate your paying is. This information can help you when it comes to planning how to deal with your debt.
Don’t forget to include any investments you might have, such as ISAs. You want to get a complete picture of your overall financial situation.
Step 3 - Set your goals
What are your goals for 2020? Are you planning a family holiday or saving for a wedding?
No idea where to start? Take a look at our blog post ‘Creating goals when you don't know what you want’ to get started.
Once you know what your aims are, it will be easier to make financial decisions and see how to prioritise your money.
Step 4 – Plan for changes in your life
Are things pretty stable in your life, could there be rent or mortgage increases this year, maybe your job isn’t secure, or perhaps you are planning to change career?
While you can’t predict the future, you can think about ways in which you could protect yourself from unforeseen circumstances or rising costs. For example, if you only have a temporary work contract, then maybe now is not the time to book that dream holiday.
Step 5 – Create a budget
Once you have gathered all the data about your finances, you can start to put your budget together. Using this information, you can start deciding where to allocate your money.
Then it is about setting a budget for each area of expenditure – how much do you have to spend on food, how much will you spend on socialising, alongside more static costs such as rent, car insurance etc.
There are many ways in which you can keep track of how much you are spending from apps to simple spreadsheets – the right solution is the one that you will use, there’s no point having a flashy computer programme if you never log in to use it! Sometimes the most straightforward way is just to write it down in a notebook.
Step 6 – Maintenance mode and working with your budget
So, you're a budgeting wiz, efficiently tracking your expenditure every month; you know where all your money is going, you might even be saving some! Congratulations, you are on your way to being in control of your finances.
But don’t forget that your plan is not set in stone - you can change it, and tweak along the way to suit your circumstances. You may get a pay rise and choose to pay more into your pension or fund a holiday.
It’s not about setting up your budget once and then being held to it forever. It’s about using your ability to budget to help you achieve the lifestyle you desire, supporting you in reaching your financial goals. We all change throughout the year, and your budget will change alongside you, ensuring you have a brighter financial future.
How Life Centred Financial Planning and budgeting can work together to provide financial success
Budgeting is just one aspect of creating a brighter financial future for yourself. Working with a Life Centred Financial Planner could make all the difference to your life and money. This is because they work with you to help you achieve the lifestyle you have always wanted.
Assisting you to make the most of your financial resources, giving you an expert in your back pocket and peace of mind that your finances are working for you.
Life Centred Financial Planning services come in different forms depending on how much assistance you need. For some people, a one-off consultation will be ample, but others might need ongoing support.
A Life Centred Planner can help you identify your goals, create a bespoke financial plan and provide consistent guidance throughout the rest of your life.
You’ll find our Life Centred Financial Planners, experienced, and extremely qualified but at the same time very approachable, proficient, empathetic and practical. Our Life Centred Financial Planning service is exceptional value too.
We offer a complimentary 30-minute consultation with one of our Life Centred Financial Planners, with no obligation to sign up to anything. Contact us today on 01424 777 156, or via email firstname.lastname@example.org, to make an appointment and start creating a brighter financial future today.
If you found this information useful, you may also want to check out the following:
- Make a change week 2: Setting goals
- Budgeting is the little black dress of your finances
- Help, I've blown my budget!
Mike Robertson Associates Limited is an appointed representative of Lighthouse Advisory Services Limited which is authorised and regulated by the Financial Conduct Authority. See here for full details.
Specialising in Life Centred Financial Planning, MRA is unlike other traditional independent financial advisors – we are so much more. We help individuals, businesses and families achieve the best quality of life they can with the resources they have. Life Centred Planning is about the person, not the product and our Life Centred Financial Planners look at how your money can be arranged so that it’s serving your aims and dreams in this lifetime.
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