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Why is having a budget so important?

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


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


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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