By Chanelle Pattinson DipPFS, P&P Invest Ltd
Creating a budget, and sticking to it, are the first few steps on the path to achieving your
financial goals. That could be paying off your credit card, saving for a house deposit, or
investing in an ISA.
It is not about how much you earn; it is about how you spend it. It is easy to avoid looking at
your bank account and just hoping for the best, we have all been there. However, if you
understand what is going in and out of your bank account, you can track your spending,
avoid missing payments, and make a plan to achieve your goals. By budgeting, you are
taking control of your money, and not have it control you!
No judgment…
Firstly, do not be hard on yourself for any financial decisions you have made in the past. Many of us have never received financial education or been taught how to budget. Most of
us are out there winging it. So, you have probably made spending mistakes, most people have. But you are reading this article and now is your chance to make a positive change.
Where to start…
A budget does not mean you have to give up things you love. It means the opposite. It is about choosing where you want your money to go, so you can spend more on what you love.
So to kick things off, you need to have an understanding of what comes in and out of your
bank account. Work this out in a way that suits you. This could be an excel spreadsheet,
where you sit down for thirty minutes, look at your bank account, review the last month's
income and expenditure and copy this into a spreadsheet. Alternatively, you could use a
budgeting app such as ‘Emma’, ‘Money Dashboard’ or ‘Yolt’. The app does all the hard work
for you. It is important to make this an enjoyable activity. Grab yourself a tea or coffee, put
some music on and start looking at the last couple of months. You are taking control of your
finances…
So, you’ve worked out what is coming in and out. You should now have an idea of your
spending habits. Are there areas where you splurge? Do you spend a little bit more than you
would like to on Tesco meal deals? When you would be happy to meal prep for the week.
Now decide how you want to go forward, how do you want to make your money work for
you.
Let’s talk about the 50/30/20 budgeting framework…
You have reviewed your spending and now it’s time to create a budget. A popular method is
the 50/30/20. The method is as follows:
50% of your income is allocated to your ‘needs’ for daily spending. This would include your
rent, food, phone bill, and repaying debt. These expenses are the ones you must pay every month.
30% of your income is allocated to your ‘wants’. When you create a budget, it is so
important to allow yourself some fun and factoring this into your budget. Whether that’s a night out, a holiday, or simply your favourite (potentially overpriced but amazing) coffee. If you stop yourself from having the things you love, you are probably not going to stick to your budget. You work hard, you deserve some ‘wants’.
20% of your income is allocated to your ‘future you’. It is important to take care of your
future you. This allocated income should go towards your future goals such as saving for a
house or retirement.
These percentages are approximating. If you live in London, then your percentage for needs
may increase for example. To make this budgeting method easier, it is a good idea to have
an account for each of the allocations, keeping them all separate.
Keeping it up…
So you’ve reviewed your spending and created a budget, amazing. Now you just need to
keep track of your spending in the future, to see if you are on track and readjust your
budget when needed. Diarise a month from now, check-in with your budget, and see how
you are doing. If you are doing well, congratulate yourself and maybe treat yourself! If you
have had a few slip-ups, forgive yourself and make a plan to get better going forward.
About Chanelle Pattinson DipPFS
I help individuals understand their finances and reach their financial goals. I provide planning on tax, investments, pensions, life cover, budgeting, and most things finance!
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