Friday, 11 May 2012

Frugal friday - Budgets & savings

To save money, you must first know how much you have. Then you must know how much you need. Logical, eh? Written like that, it makes perfect sense - but somehow when translated to real life it is anything but that simple for most people. You work out all your bills, cut back on electricity use, and shop from a list and to the most frugal of budgets, then the car needs a service or the home insurance falls due and all your careful planning is thrown into disarray.

It is possible however to sort your finances out to a place where those sorts of occurrances aren't a disaster, and life carries on with no doom-laden soundtrack playing. How do we reach this magical state? Well we budget of course! So, what do we mean by budget? well has the first definition as
"an estimate, often itemised, of expected income and expense for a given period in the future"
Pretty concise, that. The key word there in my view is future - that's what a budget is - forward planning for money. Knowing what you have coming in is only half of the battle - the key thing is knowing when it needs to go out again, and in what quantities!

The simplest of budgets can be reached by writing down all your regular expenditure. Then, when you've got it all written down, fetch a years bank statements and skim through for the stuff you missed - add those to the list too. Remember the irregular stuff - the cat needing her vaccinations, the kids new school uniforms, the car needing new tyres. (We have a separate budget for the cars actually - I added up a years worth of servicing costs, tax, insurance and MoT fees, then added an amount to take account of tyre wear and a further amount for contingencies - the final figure was divided by 12 and that amount is now set to automatically feed across into a savings account each month. I can't begin to tell you what a relief it is to know that the money for those things is there when it's needed!). Some things are easy to budget - anything that can be set up on a regular monthly direct debit for a set amount, for example, or that only has subtle month by month variations. Other things are tougher, and it is these that can catch you out - insurances are a good example - try to avoid paying by instalments if you can as there is nearly always a charge for that. Christmas hits many people hard in the pocket, leaving them dreading the January credit card bill, and yet again, by spreading the cost across the year and transferring an amount each month into a savings account you can have a nice little cushion of money there waiting to soften the blow. Just £25 put aside each month will give you a nice £300 cushion come December.

Once you have all the figures, then consider setting up separate savings accounts online for the "big spend" items. We have various of these, which help us budget for Christmas and the car costs as mentioned, through to one for general household stuff which means paying the contents insurance when the renewal comes through is less painful than it would otherwise be!

Finally, you need to consider the budgets as being an ongoing thing - they need regular reviews and revisions as things change. A good, well maintained budget will look after you and actually help you save money as you begin to see where it goes. So, where do you stand on this question - do you budget already? Has it helped? If you don't, how do you manage your money from month to month?


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