If you struggle with money management or if you’ve got some debt you’re worried about, thinking about budgeting can seem a bit overwhelming.
Here are some easy tips to follow to help make budgeting a bit simpler…
Start with some manageable steps!
Look at how much money you have coming in every month. Whether it’s from your job, your benefits, or anything else – add this altogether and that number is your total income.
If you get paid weekly rather than monthly, you can make an estimate – just multiply your weekly pay by four. If you don’t earn the same amount every month, you could look back at previous months and take an average. If in doubt, use the month you earned the least as a baseline.
Get a handle on what you spend money on by making a list. Write down all the things you pay for in a month, as best you can.
You don’t have to note every single loaf of bread, just write down the total amount you spend on each of the following categories. These categories will then be easier to handle on their own.
- Fixed cost utilities – e.g. council tax, water bill, etc.
- Debts – e.g. car finance, credit card, loans etc.
- Bills – e.g. electric and gas, mobile phone contract, broadband
- Subscriptions – Netflix, Spotify, Disney+, Amazon Prime, etc.
- Leisure/Luxuries – e.g., pub, cinema, new clothes etc.
- Savings – any money you put to one side or in a savings account
Note: If one of your outgoings sometimes changes in cost, it’s best to overestimate. Remember to be realistic about luxuries; we deserve a few of these every now and again and a budget that doesn’t take them into account is setting you up to fail.
Add up your total monthly outgoings and compare this to your income…
If your income is higher than your outgoings, you can put more money into savings.
If your outgoings are higher than your income, you need to reduce your outgoings – use the traffic light system below to help you see where you can make changes…
Prioritising your categories
Each of these categories fits into a traffic light system. This will help you prioritise and see how much flexibility you have each month.
- Red: Necessities you have to pay for, and you can’t change their cost.
- Orange: Necessities you have to pay for, but you have a small amount of control over their cost.
- Green: Not necessities, so you can control their cost to your budget.
Now you’ve worked out the things in your budget where you have control over the cost, you can find places to save money…
Reduce your outgoings…
Can you save money? Can you get a better deal?
Chances are that if money is tight, you’re already doing everything you can to make your living costs as cheap as possible. You may already be an expert in price comparison sites or hunting for the best supermarket deals. But there might be some savings out there that surprise you…
Do some price comparisons – can you switch broadband provider for a lower rate? Can you ditch some of the subscriptions you don’t use, or at least sacrifice some upgrades for a cheaper account?
For example, you usually don’t have much choice about your water bill – it’ll probably cost you the same every month and you can’t pick and choose your provider – but you might be able to switch gas and electric suppliers to get a better deal.
You also have to buy groceries – but you might be able to choose a different supermarket, different brands, etc. to save yourself money.
Now is the time to make the switches and free up money for your budget.
You’ve made your budget, lets sort out spending…
Getting your pots in order!
You want to make things simple and minimise any impulse spending that breaks your budget.
Here’s one way to tackle it…
- MAIN POT: Keep your main current account for all of your direct debits, standing orders, and automatic payments for the month – things like rent, utilities, bills, debts, subscriptions – leave enough in there to cover all those payments and then put the rest in either of the two pots below.
Don’t dip into this main pot for any reason.
- GROCERIES/LEISURE POT: Use your budget to work out how much to put in this pot; it could be in cash or a separate account – just as long as it’s separate from your main pot and you can easily see how much you have left to spend.
A safer and simpler solution than taking it out in cash is to use a separate current account like Monzo or Starling. They’re easy to open and you manage your money using their apps, giving you a separate bank card that you know is just for groceries/leisure spending.
- SAVINGS POT: Have a pot where you put money aside; this can also be either cash or a separate account. If you know that you’ve got a big payment coming up – say you’ve got to pay for your car insurance in December – having a savings pot you pay into throughout the year can be really useful.You can even set up an automatic transfer/standing order from your main pot every month (if you’ve planned this into your budget), so you don’t have to think about it.
Ready to start saving?
How to manage your savings pot…
If you have any money to put into savings, opening a savings account is the best plan. Even the smallest amount each month will start to build up!
Savings accounts are a really useful place to put money for special purchases or emergencies.
In general, the interest on savings accounts is pretty rubbish at the moment, so you won’t be making any money while it sits there – but having a separate pot can help you practically by giving you a place to put money you know needs to be saved and not spent.
Savings accounts typically fall into two categories – ones you can touch and ones you can’t…
- Savings accounts you can touch are good if you often set some money aside and need to regularly dip into them. The only risk is that you may end up using your savings money before you need it.
- The other sort you can’t touch without going into the bank, formally withdrawing the balance and closing the account – this applies to certain ISAs. The downside of this is that your money is locked in; a great option if you know you’ll be able to cope without that money but bad if you’re in a tight spot and you need the extra cash quickly.
How much to save? This is up to you!
You might have to save a certain amount by a specific date, so you plan this into your budget – think of it like a monthly bill. You might even have money left over in your groceries/leisure pot at the end of the month that you decide to save.
So, what to do on payday?
When you receive your income, keep money in your main pot for rent and bills and then transfer/take out any money you want to put in your groceries/leisure and savings pots.
By keeping more flexible spending money separate, you know exactly how much you’ve got to spend without dipping into the wrong pot. Some find it easier to withdraw this in cash so they can visualise throughout the month – others find it easier/safer to use a separate account and bank card.
This means you can focus on managing your spending without having to remember what subscription and bills payments go out, and when.
NO NEW DEBT
PRO TIP: Don’t sign up for something you can’t cancel without a financial penalty.
A service you are free to cancel at any time – like a weekly Smart TV rental from hiya! – is far less risky than buying a TV on finance, where you’ll be obligated to pay whether you’re able to or not.
Don’t be tempted by delayed debt you can’t afford, like 0% finance for a year – you’re only putting future you in a tough spot! Be kind to future you.
Making impulse purchases, especially in the lead up to Christmas when you feel obligated to get presents, can have such a detrimental effect on your money plan and send you into a debt spiral.
If an emergency comes up, make sure new debt is your last resort!
First consider what can go from your green category – e.g. luxuries – and cut out anything that you can live without (if you haven’t done this already).
Not everyone can reach out to family or friends for help but asking for some support from loved ones is a far better option than putting yourself in more debt.
Finally, you can apply for help to pay for bills and consolidate debts if you’re struggling.
TV, mobile phone, and tablet rental from hiya!
No finance, no credit score check…
At hiya! we hate debt just as much as the next person. We also think that bad credit shouldn’t stop people being able to have little luxuries just like anyone else.
We know that short term mobile phone rental, for example, is a lot less risky than tying yourself to a costly 24-month phone contract. That’s why we offer a weekly rental service that can be cancelled at any time without a penalty, with no late fees, and no debt!