Budgets, budgets, budgets! Some people hate them, other people love them (yes, such people exist). One thing is for sure the odds are heavily stacked against you achieving what you want financially without one. Budgeting should be a part of your financial routine. If you’ve ever wondered where your money went, odds are you don’t have a budget, or at least one that works.
A budget is telling your money where to go instead of wondering where it went – John Maxwell
I will be covering how to build a budget in a separate post. If you already have a budget and are still wondering what’s happening to your money, this post’s for you.
You Keep Blowing the Budget
Now this may seem obvious but if you keep overspending, your budget is not working (self-control may also be an issue). Your budget should not be overly restrictive. It should set some boundaries on your spending but not stop you from living your life! If you like a bit of fun there should be an allocation for that, whether that be cinema trips, drinks with friends, etc.
Your Income changes significantly
A significant increase or decrease in income warrants a change to your budget. With an increase you could throw more money towards your financial goals (e.g. emergency fund, housing deposit, paying down debt). This will get you where you want to be faster.
A significant reduction will mean looking for areas to save and potentially cutting out some non-essential expenditure altogether. Such changes could be looking for cheaper utility providers or deciding to walk all local errands rather than drive.
Your circumstances change significantly
There are various stages in each person’s life. You could be single, married, divorced, with or without children. However changes in circumstances are not just confined to relationship status! You could be moving out into a place of your own after living in a house share or moving back home for one reason or another. Each situation calls for you to revisit your budget. If you’ve just had a baby there’s going to be some additional expenditure to factor in. Likewise if your moving out on your own and no longer splitting bills.
Your Budget doesn’t change from month to month
You can have a budget template that you use each month; however each month isn’t going to be the same. There should be some allowance in your budget for occasions such as birthdays and weddings which don’t happen every month. There are also one-off annual payments (e.g. road tax, MOT) to consider.
If you find you can’t tackle these using a particular month’s pay, or would like to keep things as standardised as possible (helps with automation), put an amount aside each month to fund them.
E.g. For Road Tax of £180 per year, you would need to set aside £15 per month.
Emergencies throw you off budget
Ask yourself if you had a £500 emergency how would you fund it? If your answer is something along the lines of borrow from someone/stick it on the credit card you need to build up an emergency fund. Unexpected things do happen. Wouldn’t it be nice to have the funds there to solve the problem if say your car or fridge broke down?
With a recent study findings that millions of Brits have less than £100 in savings you’ll be ahead of most if you put a fund in place.
You don’t tell every penny where it should go
This is known as a zero-sum budget. After you’ve budgeted for expenses the remaining income should be zero. It all comes back to that notion of planning. If you don’t have a plan for that money, you’ll find it just disappears somewhere. You may even find you end up overspending as you thought you had £X to play with so you kept buying the odd unbudgeted thing here and there.
These are some of the reason I found myself changing my budget in the past. For any budget to work commitment is required. If you stick with it you will definitely see the benefits over time.
Do you have a budget? Have you had to re-work it? If so why? Let’s get the discussion started!