If You Want To Be Rich, You’d Better Make A Budget
‘Budget’ is a very dull sounding word, which is met by trepidation by many people who think that it will hold them back from what they want to do. I feel ya! It does not sound like a fun activity at all and can be one of those things to put on the back burner and never actually get round to. But it is so important and won’t take that long, I promise! I have a printable budgeting sheet for you to print off at the bottom of this post.
Like with the emergency fund, we could re-name the ‘budget’ to make it sound more appealing. How about…’spending plan’ or…’get your s*** together game plan’…’get rich formula’…anything that you like!
Budgeting is basically just allocating your incoming money into categories to make sure that everything that needs to be paid gets paid, and enables you to pay off debt, get wealthy…all by the simple means of writing down your income and expenses. If you are feeling at all nervous about doing this, or really bored by the whole idea – don’t be! If you don’t have a budget in place, you will see such a change just by implementing one and it can be a great stress reliever. We don’t want to be coasting through life – we want to be living it the best way we can, to get rich and be prepared for any bad times.
Note: It’s incredibly important to do this with your partner. If you work out a budget for the two of you, it’s very likely that they won’t follow it. It needs to be something that you do together – if your partner is a spender like mine is, this can seem a little bit scary – but once they see all of the numbers written down, I promise you that they will be better at sticking to the budget.
If you don’t have a partner then you could do this with your older children (important for them to learn), or a friend who is happy to help you – feel free to email me if you would like any help with your budget as I would love to help you with this.
First step of budgeting is working out all of your income. This may sound straight forward, but for some people it is not due to not having a salaried income, or multiple income streams.
- Check your payslip
Write down the amount of money you have after paying tax, pension contribution etc. This is your income from your job.
- Write down any other income
I do hope that you all have extra income, because I believe that it is important to have multiple income streams so that you won’t be up a certain creek without a paddle if you lose your job. Extra income could include: rental property, side jobs that you do regularly, and make sure that you include any benefits or tax credits.
- What to do if you have varied income
The best thing to do is the best thing that works for you – and depends how much your salary varies by. I personally get paid less during the winter months every year – so I am prepared for this. Write down the minimum amount that you will get paid. Another thing that you could do is work on your budget every month and work out your budget according to what your income is at the beginning of the month. So before any money is spent – adjust your budget accordingly.
Now you know what your income is, you can start to work on how they are paid, and your expenses.
- Write down all of your expenses
This is easier said than done, I know! This can seem like a daunting task – but I bet that your expenses don’t vary that much each month, as we are creatures of habit.
If you have internet banking, this is easily done by going onto your direct debits, or statements, and seeing how much your household bills are each month e.g. mortgage, rent, gas/electric, water, TV licence, TV/Internet package, childcare, car insurance, car tax, home insurance, contents insurance, life insurance, mobile phone, food shopping.
- Automate payments
This is the best thing that you can do to make sure that you never miss a payment. No more missing payments and paying the dreaded late fees (they are SO much as well aren’t they?! Swines.). It’s super easy to do, and is a total life saver.
I recommend to everyone to get internet banking – trust me, not every has it (looking at you, mum!). The reason for this is because you can log on at any time and check all of your payments. It’s very easy to set up direct debits or standing orders on internet banking also.
- Make sure your direct debits come out at the same time
If you are paid at the same time every month, the best thing to do is set up direct debits to get all of your bills paid as soon as you’ve been paid. This is because then you won’t think ‘ooo look at all of the money I have, lets’s go spend it’ (looking at you, husband!). Once it’s gone, then it’s gone, and you can’t then spend it – the bills are important.
- Separate saving accounts
I can’t speak for other internet banking sites, but with my bank they allow you to set up mini accounts which you can transfer money in and out of. I use these for putting money in that I won’t be spending immediately but need to keep. An example of this is my sister-in-law’s hen do is next year and I know how much money I need to pay for it (bridesmaid here!). I have the money, but if I leave it in my main account I could forget to keep the particular amount in there, or find something else that I need to use it for. But if I move it to a mini account (you can re-name them too) then you know not to touch it, and it won’t confuse you when you wonder why you have so much money in your main account.
Once you’ve determined your expenses which don’t change from month to month such as your mortgage, you can then see how much you have left for debt repayment, fun money and savings.
I’ve had some great fun (money nerd here…) looking at the breakdown that other personal finance bloggers are generally suggesting for a budget (just type ‘starter budget pie chart into Google images), and this is an overview of what they say:
‘Other’ 25% (inclusive of grocery shopping, childcare, entertainment, clothing, phone, fun money etc)
Please note that this is for a very basic budget and will probably not work for everyone – that is the beauty of personal finance – it is personal. View this as a guide and it will hopefully help you to adjust your expenditure in a positive way. For some people, childcare will be a huge expense, but for others, it won’t be!
This is money which is for…fun! Anything that you deem to be a treat, is what you should spend this money on. Changing money habits can be difficult, and if you are paying off a lot of debt it can get you down. The most important thing is to be happy and allow yourself a ‘treat’ – this could be a coffee date with the girls, a meal out with your partner, money to fill the car up to go on a trip – whatever you like.
When you have a lot of debt to pay off, or a lot of money to save to achieve your goals, it can be tempting to leave yourself no fun money at all. This is a bad idea and I’m talking from personal experience here – there is nothing wrong with allowing yourself a tiny bit of spending money. If you think you don’t need any, then that is completely fine as it’s up to you, but the majority of people benefit from giving themselves a little wriggle room.
Wealthy people have budgets.
Instead of thinking of reasons why you can’t or won’t use a budget, grab a pen and a piece of paper and work out your income and expenses right now. It’s fresh in your mind now, you can go back over this post whilst you’re doing it, and it won’t take you that long.
It may seem boring, but does achieving financial freedom sound boring to you? If you want to travel the world, stay at home and raise your children, be your own boss or another big amazing dream – this is the first step that you can take towards making that come true.
Please don’t think that I’m telling you that you can’t buy anything – far from it! Budgeting is after all, a spending plan.
Set up your budget, but most importantly – take action. There is no point in working this out if you are going to put it away and never use it. I can give you all of the advice under the sun, but you are the one that needs to execute it.
Do you have a budget, or want to start one?