You need something that puts you in control of your spending.
Your grandparents used to budget using a pencil and paper. But they didn’t have contactless cards and mobile bills and overdrafts and credit cards and takeaways…
Now many people find it harder to budget and feel they have lost control.
For a budget to make your life easier, it has to be simple, not time-consuming and realistic. And there are lots of new tools that can help you.
This article has TIPS that will help you find which tools will work for you and your family.
Why you need a budget
Dave Ramsey has summed this up perfectly:
A budget is telling your money where to go, instead of wondering where it went.
Budgeting puts you in charge. It’s not just for people that are bad with money or have problem debts.
It will help you achieve your financial goals whatever they are – from paying off debts, to saving a house deposit or increasing your pension contributions.
6 bad excuses for not budgeting
If we look at some common reasons for not budgeting, they highlight how a budget can help you if your finances aren’t easy at the moment.
1 “We usually manage OK without one”
If you normally have enough for your bills and expenses with some left over for going out and a bit for saving or paying off debt, a budget may not sound worth it.
If eleven months out of twelve go well, that sounds healthy.
But if something unexpected causes problems for several months in the year and you get through those by using your credit cards or increasing your overdraft, your debts are probably trending upwards.
Also, is OK good enough for you? TIP If you never seem to save as much, or clear as much debt as you would like, then you may be managing without a careful budget, but you could do a lot better with one!
2 “I’ve tried and they don’t work for me”
Thinking about what went wrong can be your best clue to making sure it works this time.
Was your target budget simply unrealistic? A budget with no money for entertainment, clothes or the odd gadget is not “sensible” and you won’t be able to stick to it. TIP It’s just not possible to live on too little for month after month. Having a realistic budget that you can live with is better than a tight budget that fails – see How Far Should I Cut Back?
Are you finding it difficult to manage weekly or fortnightly incomes and monthly expenses? TIP If this is at the heart of your difficulty, look at Squirrel – it’s an app you have to pay for, but it may transform your finances if you have this sort of problem.
A very erratic income makes budgeting hard. TIP If you can just about live off your minimum income, then plan to do this and put aside the extra in good months can work. If that sounds impossible and you have accumulated debts trying, talk to a debt adviser.
3 “My partner doesn’t want to”
When you want to save or clear debt and your partner doesn’t, it’s like trying fill a bath whilst the plug is out :( If your partner doesn’t see the point, read His and Hers – Debt and Relationships.
Your partner may be worried that you will set a budget that is too tight for them?
TIP Emphasise the budget will be drawn up jointly and then monitored together – plan a pizza & budget night once a month.
TIP Many couples find it helps to have a “pocket-money” allowance each month that they can spend on anything they want and not have to tell the other person at all.
4 “I don’t have time to budget”
Setting up a budget will require a few hours work in the first month, and some time to adjust it in the next few months. It’s a rare and lucky person that gets it perfect at the start!
But after that, having a budget is going to make your life easier and save time:
- you are already having to make time to cope with all your financial problems. Budgeting makes things simpler and the problems will get fewer.
- it will become routine and take less time than you think.
Some people like to keep track of things themselves, but others prefer their expenditure to be automatically tracked using an app. These will take hardly any time after they are set up on your phone, see How to track what you spend below.
5 “I just don’t have enough money!”
If you don’t have enough money to pay your bills, buy the essentials and pay your debts, then budgeting can seem impossible.
In this case, you need to get help to deal with your debts. Here is a simple road-map that gives an overview of your options and suggests who you should contact.
Debt advice can get your debt repayments down to a manageable level – then you can make sure your finances are stable by budgeting.
6 “It’s too complicated at the moment, I’ll start later in the year”
If you are waiting for a simple month, you will probably never start budgeting. There is always something that crops up!
And that would be a pity as a good budget makes it easier to manage both the erratic expenses and the unexpected ones.
TIP You may wonder what is the difference between erratic and unexpected. That’s really important for budgeting:
- Erratic expenses are ones that aren’t the same every month. Sometimes they vary unpredictably – your car will need new tyres at some point. Sometimes you can make a good guess – Christmas costs in December, school uniform costs in August. You need to put aside money in the months you don’t spend for the ones you know will happen.
- Unexpected costs are ones that you didn’t know would happen this year. Your landlord gives you notice and you have to find a deposit. Your mum dies and you have to fly home for the funeral. This is what you need an emergency fund for.
Start by looking at your income, debts and expenses
You need a list of your income(s), debts and expenses. A good way to look at these is to use this online Budget.
That tool is really helpful as it:
- converts weekly, fortnightly, 4 weekly and annual incomes or expenses into monthly figures so they can be added up;
- suggests lots of things you may not think about such as prescriptions, car breakdown cover, vets bills etc.
For incomes, include everything: you may mentally think of the child maintenance you get as being spent on your children’s after-school activities and their clothes, but for now put both the income and the expenditures into your budget.
For your debts, start off with the minimum payments you have to make. Later you can adjust this when your budget shows how much extra you can pay off – that credit card may take over twenty years to clear if you only make the minimum payments!
For most people the hardest numbers are their expenses. Looking at recent credit card and bank statements will help. And check your online banking to see all your direct debits and standing orders so you don’t miss an annual expense.
Think ahead for when expenses are likely to occur – late August for new school uniform, December for Christmas, which months are your MOT and road tax due?
Is that realistic?
If your budget shows you should have a lot of surplus money at the end of the month and you never do, then you are probably recording what you “think” you are spending, not what you actually are.
Read the Apps do it all for you! section below and use one of those apps to get a better grasp on where your money is currently leaking away.
Now you know what you are spending, do you want to make any changes
Make a list of ways you could save money and decide how important they are. You can’t cut your rent easily, but you could stop getting takeaways with a bit of organisation… Don’t plan on cutting everything back to the bare minimum as that’s setting yourself up to fail.
Sometimes the changes need only be temporary – most adults can manage 6 or even 12 months with no new clothes at all to get blitzing your debt down off to a fast start.
TIP This could also let you build up an emergency fund that will make future months less stressful. If you think that normally £30 a month on clothes will be about right, put that in your budget from the start but plan not to spend it but save it for a while.
Does this budget “balance”?
Now you have changed a few things, do you have enough income to pay all the bills, expenses and the minimum debt repayments?
If the answer is Yes, then you have a budget that balances:
- you may still have a lot of debt. but if you stick to the budget (see How to track what you spend below) you aren’t going to get deeper into debt each month.
- read about “snowballing” your way out of debt as this page explains.
If you don’t have enough income, then you need to look at all your debt options. Budgeting isn’t the cause of your problems at the moment, it just a symptom that you don’t have enough income to manage on.
When you have talked to a debt adviser and decided what to do about your debts, you will still need to budget. But with less money going out to your creditors, your budget should be back in balance. It may still be tight, but it shouldn’t be impossible!
How to track what you spend against your budget
There are two ways to do this.
The modern-day equivalent of pencil and paper is a spreadsheet. Here you record what you want to spend and then track what you have spent against it.
You can use pencil and paper if you like! Some people find doing it “by hand” gives them a positive feeling when they are adding up the numbers and they come in under budget – and they want to avoid the negative feelings of going over budget. So the way they record this helps them keep on track.
This could also be a money management program that isn’t linked to your bank account. Anything where you enter what you have spent and it adds it up and shows you where you are under or over budget.
Some people swear by this:
- it’s totalled automatically, so you don’t need to enter anything into a calculator.
- you can tailor the categories to your life. No kids and you can manage without school uniform, pocket money etc. Want to keep an eye on what you spend on a hobby – just set up a separate line for it.
- the fact that you are recording the expenses can make it feel more real than if the totals appear in an app “by magic”.
Once this becomes a habit, if you always keep receipts, entering them into the spreadsheet can take a few minutes a day or be a regular 20-minute task on a weekend morning.
But for others, this is a lot too much work. If you flash a contactless card around a lot, entering the numbers can get tedious. If you (or your partner) get badly behind, you may give up.
Apps do it all for you!
If you are new to budgeting, you may decide to skip straight to mobile apps.
I have reviewed a set of apps that help you to budget and to save. Check those out and decide which to try. You need to find one that feels right for you. If you have never used one before, it can be a revelation how much you spend on clothes or coffee or takeaways.
TIP if you have previously tried spreadsheets and failed then go for an app. If you tried an app and it didn’t work, you could look at another one (they have got a lot better in the last two years) or give spreadsheets a go.
Get the important bills right with piggy banking /the envelope system
If you want a fool-proof approach to the important everyday expenses, so you always have enough money left to pay bills as they arrive during the month, then look at the simplest system of all – cash in different envelopes or pots – sometimes called piggy banking.
This doesn’t have to literally be cash. The pots can be separate bank accounts, or your bank account may let you set up pots within your current account. This is how Monzo describes them:
You could try putting the money you need for bills into a pot as soon as you get paid, and only moving it back into your account when you need it. This means you can set aside everything you need to spend on bills, rent or mortgage payments safely, so you don’t spend it accidentally!
TIP Read Piggy banking / the envelope method – how to budget better! for more details on this.
An emergency fund will make your life less stressful
No matter how good your budget is, something may come out of the blue and threaten to derail it.
An emergency find can keep you on track. You may have a bad month or two, but that’s better than having to get a high-cost loan and store up problems for all the following months
TIP If it sounds impossible to put money aside when you can’t cope at the moment, read 6 ways to save – which will be the easiest for you? and pick one to try. This is a very personal choice – what I like best, may not feel right for you!
Track after you spend? Or check before you spend?
Your budget is useful already if it has let you explore your situation and make some decisions about cut-backs.
But its real purpose is to be an active tool going forwards, letting you compare your spending against your plans.
After you have done this for a couple of months, some people find they have a good feel for how much of this month’s clothes or entertainment budget is left. So if you see something you fancy, you know if it will be within your budget or not.
Other people find this trickier – and it can be especially hard if there are two of you to know how much your other half has spent in the last few days.
For me this is one of the big advantages of apps. You can see, on your phone, the up-t-date position. A quick check before you buy that cute dress for your daughter.
A collection of tools to improve your budgeting
There isn’t one right way to budget. This article has looked at a lot of the problems that can arise and the different ways people can get round those difficulties. Some of them won’t affect you. And what works best for lots of other people may not be best for you.
Don’t be a perfectionist and give up when things go wrong. Having a budget and missing by a bit – or a lot – is still better than not having a budget at all. I love the cartoon here on life’s ups and downs.
If you have several bad months at the start, you may be trying to live to numbers that are too strict and you need to allow some extra expenses, even if it means it will take longer to pay off your debts or save that house deposit.
But sometimes you just have a bad month and need to keep going!