Even before the financial challenges brought on by the Coronavirus pandemic – including furloughs, redundancies, and temporary pay cuts – millions of Britons were living pay cheque to pay cheque. Shockingly, one in five of us report having no savings to rely on in an emergency. The rising cost of living can make it challenging to get by, but effective budgeting can help you navigate even the leanest of times.
According to the Money Advice Service, only about half of UK households maintain a budget. This means millions of people are making spending decisions on the fly, trying to manage their finances without a concrete plan.
If you find yourself in this situation, don’t worry—help is at hand. Here are some practical steps to help you get started with budgeting.
- Calculate your actual outgoings
The first step to financial clarity is taking a comprehensive look at your expenses—not just obvious bills like rent, mortgage, or council tax, but also unexpected costs like boiler repairs. Money Saving Expert offers a detailed spreadsheet with over 100 categories to ensure you don’t miss anything. Additionally, review your bank statements from the past year to get a clear picture of your spending habits.
- Assign every pound a purpose
One time-honoured approach to budgeting is the envelope system. Every time you get paid, you allocate all the cash into different “envelopes” for everything from groceries to utilities and even future gifts, ensuring every pound has a purpose. You can modernise this approach with budgeting apps like Emma and HyperJar, which allow you to manage your different ‘pots’ of money digitally while keeping your money safe in your bank account.
- Plan for Large, Infrequent Expenses
Budgeting really starts to work when you go beyond covering immediate bills like rent and petrol; it involves planning ahead for more significant, occasional expenses. For example, you know your dishwasher will, at some point, go kaput. By saving a small amount each month in a dedicated fund for household repairs, you can handle these costs without panic stress when they arise.
- Cope with those unexpected costs
Sadly, emergencies can’t be guaranteed to arrive on schedule. You might only be starting to save for repairs when the worst happens, or some big expense might come along that you never anticipated.
Luckily, the envelope system is flexible, too. You can take some money out of other envelopes and pool it together to meet that expense. It may mean tightening your belt – once the envelopes are empty, they’re empty – but when the next payday comes around, you can start to recover.
- Build up an emergency fund
As you gain more control over your spending, focus on establishing an emergency fund to help you through significant crises, such as losing your job. The Money Advice Service suggests saving enough to cover three months’ worth of essential bills and expenses. Building this financial buffer can provide priceless peace of mind and financial security.
- Track and Review Your Budget Regularly
Finally, keeping your budget up to date is essential for your longer-term financial health. Set aside time each month to review your spending and adjust your budget if necessary. Tracking your progress in this way helps you stay accountable and highlights areas where you could save more.
Use budgeting apps or online tools to simplify this process and ensure nothing is overlooked.