Organising your Budget
My husband Ian has been kind enough to write a blog for us this week on this month’s theme of Home Management – this week focusing on Budgeting. He’s added a link on the end and he tells me, for full disclosure, that anyone who signs up for it gives him a free month on the site that he uses. I don’t think this detracts from the advice he’s given as he uses it regardless of whether or not he gets a freebie! And there are, of course, other sites that you can use.
I’ve tried my hand at budgeting many times over the years, and most attempts have ended in failure - either from not being sustainable in the way I was doing it, or because the method didn’t deliver the results I wanted and, more importantly, needed. Finally I have found a way that seems to work for me and more importantly actually makes sense.
Most budget apps are rear-looking: you note down your spending retrospectively, so they tell you what you’ve spent, but don’t help you plan for the future. What is more useful is a budget method that helps you plan for the future expenditure.
When Rosie mentioned a site/app that I hadn’t come across before, I thought I’d check it out and see what it was all about. It’s an American site called YNAB, which stands for You Need A Budget. To say it revolutionised the way I think about my budget may sound like an exaggeration, but the philosophy behind it really spoke to me and made sense.
The first thing to do is to look at your income - how much you receive and how often. Weekly, monthly, fixed or variable? These are key things to understand, as this will have an impact on how you approach the budgeting process. Then start to think about the outgoings. Starting with the easiest and most obvious monthly expenses like mortgage/rent, gas, electricity, council tax, car leasing payments, any loan repayments etc. - these are usually fixed and predictable and are the real non-negotiables! Then move onto things like groceries and petrol and all those other monthly bills and subscriptions - mobile phones, broadband, Netflix, Spotify, Amazon Prime. All these together comprise the regular committed monthly outgoings. At this point it’s good to estimate roughly how much they are every month, as this will tell you how much of that monthly salary is pre-committed. Of course, while some payments are fixed, like Council Tax and Netflix, others will vary depending on your particular circumstances - mobile phone bills will almost certainly vary month to month, but have an idea of how much they all are together on average. If you’re not sure, have a look at your bills for the past few months to get an idea of how much you need.
That’s the easy bit done - the next is harder and might take a while to get “right”, so don’t worry if you miss something the first time you do it. This is all about those irregular but equally necessary expenses - the big ones for me are car MOTs and repairs, servicing (including new tyres!), car tax, home and car insurance - you get the idea. I refer to these as my “Future Debt Prevention” categories - by saving for these I will hopefully avoid having to rely on the credit card! For the insurances, I guesstimate how much I think I’ll need to spend on these when the time comes - for car tax, I know that it’s £340 per car per year, so I’ll need to find £680. Car insurance has cost me about £450 for the past few years, but this year I’m aiming to save £500 in case of inflation etc. Now think about where you are in the year and when these payments come due, and divide your target figure by the number of months remaining until you need to pay for these things - that is the amount you need to save each month in order to have these things fully funded. Repeat for the other items in this category! Don’t forget to have a look at other things which are less frequent - passports spring to mind. With 6 of us, I seem to need to renew one every couple of years, and that is almost £100 each. Also, things like hobbies - do you have membership fees to pay, or access costs? Equipment maintenance is also an oft-forgotten expense. We ride, so while I’m not going to get into the cost associated with maintaining my pony, we do need to remember to budget for ride entry fees for the endurance ride events in the summer and the TREC events in the wintertime (brrrr).
Finally, add on things like holidays - how many do you take, when do you need to pay for the various elements - flights, accommodation, car hire for instance? We usually only take one a year when we head to France for a week’s skiing, and the first thing is to book accommodation with a small deposit (shout out to there excellent Notre Reve apartment in Montchavin where we stay!), then with that locked in it’s onto flights. Conventional wisdom says book these as early as possible, so I know that in March/April I’ll need to pay for these, as this is when EasyJet release their schedule for the following winter season. Don’t forget to budget for transfers! Once the flights are locked in I organise those. I buy our Ski Passes in October - because there’s a pre-season discount available that expires on 1st November - and also organise ski hire for the girls while I’m at it. Then it’s a question of including a budget line item for the daily expenses such as mountain lunches, dinners etc. Obviously the individual elements will vary according too they type of holiday - beach, sightseeing, winter etc, but the example of skiing gives you an ideas of breaking down the elements that make up your particular holiday
Now you can follow this method yourself with a nice Excel spreadsheet, but YNAB’s software makes light work of this and it’ll work out how much you need to save each month for the longer term things without having to do all the calculations yourself.
Referral link: https://ynab.com/referral/?ref=mBXbYT6Zcef3LVI_