Why Budgeting Is Important - It's The Best Thing You Can Do This Weekend
Warning: this post is not about ruining your life
Yes, you read that right, we’re not suggesting you give up all the things that make you happy. We know that most people cringe at the idea of budgeting, and the thought of restricting yourself month-by-month can give you the same anxiety as keeping to an extreme diet or getting up extra early every day for a challenging workout. It can feel like a punishment.
Instead of thinking about budgeting as a restriction, think of budgeting as a way to optimise and prioritise your spending, build good habits, and make each day count towards making your life better. It’s a way to spend your money on the things that matter most to you without running out before the next payday.
Don’t worry, this post is also not filled with thoughtless hacks like queuing up at the supermarket at the end of the day waiting for items to be reduced or expecting you to cut back to eating beans on toast for dinner every night. Not only would that be depressing, tactics like that are not sustainable and set you up to fail.
There are plenty of other ways to get your finances in better shape, and the most effective are the tactics that suit you and your lifestyle.
Why should I bother?
Realistically, there are countless reasons to budget, whatever your objectives. There’s a good chance you’re reading this with something in mind like escaping debt or saving for something special. Here are just a few advantages to budgeting:
Find financial peace of mind
Anyone who has ever felt overwhelmed with money anxieties (and who hasn’t?) will realise just how much those numbers in your bank account affect your wellbeing. Losing control of your finances is stressful, but budgeting is all about getting yourself back in control so you can avoid debt and spend on what matters to you.
Master the art of budgeting and you’ll be on the path to a healthier relationship with money, creating a new mindset where money is no longer the villain. Getting into financial shape is as important as the body or mind when it comes to mental wellbeing, so remember to take care of yourself.
Grow those savings
Budgeting isn’t always about debt. Sometimes it’s just about justifying that big purchase, whether it be a holiday, a new car or the latest TV. Of course, savings don’t happen magically, but it is simple math: spend less than you earn.
If you can, start building your emergency savings fund. Every so often we’re all hit with unexpected expenses or unfortunate life changes, so it’s a good idea to have money stashed away just in case. It might be the loss of a job or a pay cut, an end to your tenancy, or the breakdown of a relationship. You might desperately want to quit that job that is affecting your mental health or leave the partner who you’re no longer happy with but are worried about the money implications. Savings buy you that freedom to choose, so ideally aim to have between three to six months of expenses covered.
Get out of debt
This may be the obvious advantage, but rightfully so. Proper budgeting can help turn the odds in your favour and finally overcome the debt you’ve found yourself in. Think of your budget as your life raft, overspend on the wrong things and you’ll drown, but turn your debts into savings and you’re plain sailing. You’ll want to be proactive rather than reactive and tackle that debt rather than just letting it grow over time.
Who it is for?
The easy answer: budgeting is for everyone.
Whether you have a stable monthly paycheck, work irregular shifts or are self-employed and your income changes from month-to-month, you can still budget. Unless you’re one of the lucky few whose income is vastly more than their spending, it’s probably a good idea to get started. You’d expect every company to budget, from start-ups to multinational corporations, so why not expect every individual?
Our top tips for budgeting
Everyone budgets in different ways, but we’ve rounded up a few of our favourite tips to share with you:
Keep it simple
Budgets definitely don’t have to be complicated. If anything, it’s probably best if they’re not. Preparing a budget really isn’t as tricky as you might think, nor do you necessarily need a complex spreadsheet or numerous bank accounts. The first step is working out your income either for the week or month, then whatever expenses can’t be avoided. You’ll also want to include annual expenses like birthdays, holidays and Christmas.
You can split it into weekly or monthly obligations to give you a better overview of your finances. A popular system is the 50/30/20 system. 50% of your income should go to fixed costs like rent, phone and utilities, 30% to variable or lifestyle costs like shopping, going out and travel and the last 20% should go to savings.
Find the right tools
There are tons of tools to track your monthly spending and plenty that are user-friendly enough you might actually enjoy yourself in the process. Whether it’s a notepad or the notes on your phone or one of the countless apps, search around for the tool that works for you.
Avoid extreme ‘diets’
Don’t put yourself under overwhelming pressure to budget, or there’s no point. Unreasonable goals like stripping everything from your budget will only be setting you up to fail and cause unnecessary anger. It will never be sustainable, so don’t even try. Focus instead on short-term, achievable habits like taking a packed lunch to work.
Enjoy fun money
Always budget money for fun, even if you’re in a mountain of debt and it’s only a little. You need some guilt-free money ready so you can enjoy living in the present. You can’t just put your life on hold to improve your finances, sacrifices are fine, but not giving up everything you love.
If you really want something and it’s a little pricier, think creatively. Can you find it cheaper elsewhere? Can you wait an extra month and use two months’ savings? Is there anything wrong with it? That last one might help to put you off and that’s easy money saved. There will always be a trade-off between things you want.
Don’t worry or quit if you fail
It’ll take time to find a balance so don’t stress yourself too much, it’s natural. Money isn’t something that’s taught, so it’s understandable if you have some teething problems in the beginning or even further down the line.
Make financial goals
Work out your reasons for saving and use them to motivate you. If it’s a holiday, maybe you create a collage or Pinterest board of places you want to visit around the world, or set a certain destination as your phone wallpaper to remind you.
Not every month is equal
Certain parts of the year will always be more expensive than others. Christmas is constant and will always cost you a fair bit. If possible, try to spread these expenses all year round, as well as any holiday spending you have planned. Also remember to save money to check out the sales, particularly on Black Friday and in January.
Let your budget keep you on track
The world is always trying to tempt you to buy, from clever marketing campaigns to shop sales, but your budget is there to keep you in check. If the budget hasn’t planned for it, do you really need it? The budget is also a great way to learn more about your spending patterns and reflect for the future to make better decisions.
Learn to appreciate those moments when you do spend money on things you want, like a takeaway or a new outfit, rather than punishing yourself for them. If you’re regularly able to separate your needs from your wants, then you’re on a good track and you’ve probably earned a reward anyway. The other exception is when there’s something to buy that you really, truly love. If you’re absolutely certain that it will give you that joy, then don’t be afraid to splash out.
Start thinking in numbers
Even if numbers aren’t your strength, it’s worth thinking about your expenses in terms of how much they’ll cost over the year, rather than that single or recurring payment. For example, a £40 a month gym membership may only seem like £40, but over the year it costs £480 so you need to evaluate whether it’s worth the overall cost. As a guide, these are the calculations you need to remember:
X 12 when you buy once a month
X 52 when you buy or spend once a week
X 250 when you buy every working day
X 365 when you buy or spend every day
Reflect and save
The best place to get a head start on understanding your current finances? Your past statements. It’s here you’ll find the most important information. If there are any subscriptions you see that you wouldn’t miss, cancel them. If there are expenses that seem ridiculous, eliminate them altogether. Take a look at the things you’ve bought, particularly any impulse purchases - do you regret them? Remember this next time you walk into that same shop. Did you need to shop at that specific brand or chain or could you have got it cheaper elsewhere? You’ll want the majority of products you buy to be for the long term, rather than buying into things like fast fashion. While we all know we spend too much on takeaways or coffees, it’s still always a surprise to see just how much that adds up to. Do the calculation anyway, no matter how daunting.
One task to consider is making a list of three things from that previous month that you want to cut from the next month. Three isn’t a large amount to start with and a good way to get into the habit of saving where possible.
Planning a budget is great, but it isn’t foolproof because life will always throw the unexpected at you. You’ve got to remember to add context to your purchases, particularly the ones you want to cut. If you want to cut back on takeaways but you get home late each night and can’t be bothered to cook, there’s, unfortunately, a good chance you’ll fail and that’s completely natural. Suddenly you’ve ordered a pizza and the fresh ingredients in your fridge go off, and while your appetite will be satisfied, your bank account won’t - that’s two meals paid for. This applies to tons of other situations too, like saying you’ll only have one drink at the pub for those work drinks and inevitably ending up needing a cab home hours later.
If even with these helpful tips, you still think budgeting is overwhelming, remember that all it takes is a single area to focus on to make a difference. Once you start seeing your savings rise or your debts fall, hopefully, you’ll get the motivation needed to keep it going
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