In recent times, money has become tight for most people. Banks have cut back on lending since the credit crunch, VAT has risen and food and fuel prices are at an all time high. In most cases, people’s salaries are not reflecting this higher cost of living and people are finding themselves living on less cash monthly than ever before, cutting the possibility of savings and disposable income in half.
It is in situations such as these that budgeting becomes not only necessary, but a helpful and proactive way of keeping your money situation under control and stopping yourself from sliding into debt.
Budgeting is a relatively simple process to begin with;
- Start by listing all of your income and expenses in order to work out your total disposable income monthly. Sometimes you will find that your income and outgoings do not match up, in the case that your income is higher than your outgoings, it is worth looking into a high interest savings account and trying to put as much into that monthly as you can realistically afford. These savings should rack up quickly and will leave you a safety net of freely accessible cash for financial emergencies, large purchases and investments. In other cases, you may find that your outgoing considerably outweigh your income, and in this case there are a number of things you can do.
- Work out if your outgoings are all completely essential. Once you have covered basic essentials like food, fuel, tax and housing you can look at what else you spend out on monthly. Clothing bills can be slashed by shopping in cheaper stores or using your creative side to make or customise old clothes, gym memberships can be cancelled in favour of running in the park or aerobics at home, and walking to work will give you extra exercise as well as cutting down on transportation costs.
If you are struggling to work out where your money is going, and feel you should have more disposable income, it is worth keeping a note of everything you spend for one week, noting every single time you take your wallet out – even if it’s just for gum in the corner shop.
You will quickly be able to identify your week spots when it comes to unnecessary spending, be it a daily coffee, or lunches out at work. Try to separate out your needs from your wants and keep a strict budget for needs, with a little left over for the occasional treat. This is will stop you feeling like you are being restricted and prevent a spending spree on payday!
Another way people find themselves spending more than they can afford without noticing is through debts. Credit cards are a helpful way of obtaining emergency cash, but are frequently seen as ‘free money’, being used for non-essential purchases and then paid off at the minimum amount monthly. As interest racks up, these debts do rise, until your monthly payment starts taking out a large chunk of your income. Cutting up credit cards may seem like a terrifying leap to make, but with small, short term loans being so freely available at the moment, you will always have other options.
Avoid those late fees and penalties
Avoid overdraft charges by trying to stay well within your budget monthly, as these charges can also start to take out a large chunk of your disposable income monthly, rising quickly day by day and causing a deficit in your account before your pay even goes in.
If you look like you are going to get into an unauthorised overdraft, call your bank to see if you can have your overdraft extended temporarily. This will still cause a deficit, but it will remain static until your pay goes into your account.
Alternatively, borrowing from friends and family is the best way to stay on top of charges, as long as you are certain you can afford to pay them back in full.
Should you stick to these ideas, it should be relatively simple to build up a small pot of savings for emergencies, whilst living comfortably but not extravagantly on your earnings.