We all know that budgeting is important. It can help us make the most of our money and identify where savings can be made. A budget can help you meet goals, whether they’re just a few months away or you’re looking many years ahead.
While a budget is likely to conjure images of complicated spreadsheets or pouring over every receipt, that doesn’t have to be the case. There are a huge number of budgeting strategies that could help you. Finding a strategy that fits your goals and lifestyle is just as important as keeping track of where your money is going.
Here are four budget strategies to consider.
1. The envelope budget
This is a good option if you struggle to ensure you have enough to cover each area of expense or you find yourself dipping into money allocated for something else.
Traditionally, you’d have your money in cash and several paper envelopes earmarked for various purposes. For instance, utilities, food shopping or disposable income. It means the money for essentials is set aside and you can keep track of when money for a particular area is running low. The benefit of this tried and tested method is that your money is separated into different envelopes so you can’t unwittingly spend money on luxuries that was earmarked for essentials.
Of course, today we don’t often use cash to pay for things like energy bills and rent, you may not even use cash when you visit shops. Splitting your income across various bank accounts can provide a modern solution. Some banks also allow you to create different pots within the same bank account, allowing you to ring-fence money for different purposes.
2. Pay yourself first
If your focus is on saving and long-term goals, paying yourself first can help you take positive steps towards your aspirations.
Rather than putting the money you have left at the end of the month into a savings account, make it a priority. Set a realistic goal and move this into your chosen product as soon as you’re paid. You can then spend your disposable income safe in the knowledge that you’re on track to meet saving goals.
One important thing to consider here is where you’re moving your savings too. Should you use a savings account, ISA, invest or add it to your pension? The answer will depend on what your goals are. Take some time to think about what you want to achieve with the money you’re setting aside and when you’ll want to access the money before deciding. If you’d like to discuss your financial goals, please get in touch.
3. Use the 50/30/20 rule
This works similar to the envelope budget by providing different pots of money. However, it splits your income into three broader categories, and it can help you balance today’s costs with your future goals.
Under this budget, you’d allocate 50% of your income to essentials, such as your mortgage, regular bills and food. 30% is then used for personal expenses, this might include eating out, visiting the theatre or holidays. The remaining 20% is put into a savings account. It’s a process that can help you limit expenses while still giving you the freedom to spend on the things you enjoy.
You might find that a different ratio works for you, but the same principle remains. Taking a look at where you spend now and thinking about your priorities means you can adjust the ratios to suit you. However, make sure saving is still a priority.
4. Track the key areas
If your finances are generally in good order but you’d like to have more money to divert to saving or the things you enjoy, this method can help you. Rather than looking at your entire budget, it targets a few key areas that you know you could improve. For instance, you may want to reduce the amount you spend on food shopping and eating out. So, you’d keep a closer eye on how much you’re spending in this particular area to reduce outgoings. It’s worth reviewing your current spending, there may be areas you could focus on that you’re not aware of.
This is a budget strategy that means you still have freedom, but you make small improvements to your spending to deliver wider benefits.
With an improved budget in place, you’ll hopefully be able to save more for your future. Deciding what to do with those savings should be part of a larger financial plan too. Please get in touch to discuss your short and long-term goals.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
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