Five Steps To Brilliant Budgeting!
Sort out your finances and become a brilliant budgeter in five easy steps!
This article has already been emailed to Fools as part of our Summer Lolly campaign.
In the words of the classic summer anthem from Martha and the Vandellas: "Summer's here and the time is right for...staying indoors and sorting out your finances?"
Alas, my version doesn't quite have the same ring to it, does it? On a lovely day like today, the last thing that you want is to be sweating over a spreadsheet in order to balance your household books. Indeed, I'm sure you'll agree that budgeting is the most boring part of money management.
Fair enough, budgeting may not be as thrilling as, say, bungee jumping, but it is the very foundation of financial management. Furthermore, in the words of a former boss of mine: "If you can't measure it, you can't manage it." This man went on to retire worth millions in his early forties, so I think he's worth listening to! So, without further ado, here are five steps to better budgeting:
1. Pull together your paperwork
Without a doubt, rounding up and managing one's paperwork is the dullest aspect of budgeting. Personally, I belong to the `piling, not filing' school of money management, so I live in fear of my paper mountain! Nevertheless, without a grip on your paperwork, you have no power over your personal finances. So, get this task out of the way quickly by gathering together all of your recent statements, payslips and so on.
2. Set up a spreadsheet
The next step is to set up a list of all of your earnings and outgoings. The good news is that the spadework has already been done for you by two popular Fools. These clever chaps have produced an online calculator known as a statement of affairs. By entering your figures in the boxes provided, you can view an instant snapshot of your household budget and personal balance sheet. This information can be saved, printed or formatted for posting on our discussion boards.
3. Learn to love your bills
Although no-one likes paying bills, they do have one useful function: they provide information about our spending habits. Thus, by keeping tabs on your bills, you can learn exactly where your money goes. However, before you can begin to bash your bills, you need to bring them together in one place.
It's important not to overlook any of your daily, weekly, monthly and yearly spending. For example, don't forget to track occasional bills, such as insurance policies which renew each year. Furthermore, don't omit the little luxuries which get you through the working week. The most effective way to monitor your money is to keep a spending diary for at least a month. By recording all of your spending in a little notebook, you can build up an amazingly accurate picture of your financial habits.
4. Switch to autopilot
Because budgeting is boring, it makes sense to automate as much of it as you possibly can. For example, paying bills by standing order or direct debit takes away the hassle of having to pay them as they come in. The same goes for saving. Instead of saving whatever remains at the end of each month, it's easier to set aside a fixed monthly amount to squirrel away. By keeping things simple, you can switch to autopilot and thus avoid tiresome tasks.
5. Get help from others
After a twelve-year housing boom, we Brits have amassed personal debts totalling £1,436 billion, or almost £58,000 per household. Indeed, every one of us knows someone who has struggled financially in recent years. So, don't be embarrassed to share your financial concerns with your loved ones, because they may be in the same boat!
On the other hand, if you don't want to share your burden with family members, then get help anonymously. Try visiting our hugely popular Living Below Your Means and Dealing with Debt discussion boards, where you'll find great advice from budgeting gurus and people who have celebrated their DFD (debt-free day).
Finally, one of the key benefits of better budgeting is an improved credit record. By cleaning up your personal finances today, it becomes easier to get credit in future. So, mastering your money now should mean lower interest rates and cheaper mortgages further down the line.
Beware of your `latte factor' -- those little purchases that, over time, add up to a substantial slice of spending. For example, a £3 morning coffee totals £750 over the course of a working year!
Don't be too keen at the cash machine. If you need £10, then take out only a tenner. Don't be tempted into withdrawing £20 so that you can have `a little bit extra'.
Pay a fixed monthly amount on to your credit card. Not only will this make budgeting easier, but you will repay your debts far, far faster than you would by paying only minimum monthly repayments.
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