Every year post-Christmas, the dreaded task of counting the coffers leaves many of us huddling in the corner. One of the most common New Year’s Resolutions is to get out of debt or to save £xx before next Christmas, but it can be difficult knowing where to start. Here are some tips to help you create an effective budget.
Check your income
The first step to fixing your finances is to know just how much you have to begin with. With the ease of online banking, it’s easy to let your money go into your account without knowing just how much you’re getting. Keep a record of your salary (before and after tax) and any other sources of income e.g. a second job, selling things online or as gifts. At its most basic, once you have your incomings and outgoings, all you have to do is subtract one from the other. If the number is positive, then you’re good to go. If the number’s negative, then you need to curb your spending somewhere.
Know your spending
Knowing what goes into your bank is half the battle. The other half is knowing what goes out. Keep track of your spending over a month and see where your money is actually going. The big things like rent, utilities and cheap life insurance payments will be easy to track, but it’s the little things you need to look out for. That cheeky bacon roll on the way into work adds up, as does the bargain bin DVD you grabbed when you were bored on a Sunday afternoon. You’d be surprised at how quickly the little purchases eat into your finances, so start off by spending a week where you track every single penny you spend. Account for everything, even the 10p you gave your friend for a sandwich one lunchtime. Record everything so you can look for patterns in your spending.
Curb the trends
Once you’ve laid out your outgoings, you’ll begin to see certain trends appear in your spending habits. Why is it that every morning you go to the coffee shop on the way to work and order an expensive cappuccino, when you could just as well opt for a cheaper filter coffee, or even better, get a travel mug and drink your own coffee instead. In identifying these patterns you’ll be in a better position to cut your costs and limit your spending, making your income stretch that little further.
For many, it’s not enough to not be in debt; there need to be some savings for a rainy day, or a holiday or a wedding. Using your budget, you can immediately factor in a set amount of your income for ‘savings’ and be confident that you can afford to do so without going into the red. As well as a savings account, the good old fashioned piggy bank ensures you can’t accidentally spend your savings by locking it up until you’ve saved enough.
This article was written by Jamie Gibbs, the resident blogger for the Confused.com life insurance comparison website.