Why should you budget?
How do you manage your money? It’s no small feat to generate wealth from your earnings, but it can feel empowering when you finally make your money grow (again). You can manage this task manually, or take a shortcut with a simple, free and basic tool – our Budget Builder. Nowadays, the task of budgeting can feel dizzying, especially when your outgoings outpace your incomings. Use LifeMarket’s smart guide, tips and tools to regain control of your cash and see a newer, improved and financially-rewarding year ahead in 2020.
At a glance the benefits of budgeting are both rewarding and satisfying:
- Manage more freely your cash flow.
- Generate wealth now & into the future.
- Shape the power of your finances.
- Learn how to see it grow, and access more from the marketplace around you (i.e. buying a house, or securing a new car).
How to plan for an effective budget?
It runs under many titles: this is a household budget. All budgets serve the goal, but can achieve different outcomes. In essence, not all budgets were created equals. That’s because a budget, when effective, is a smart, though accurate, summation of your earnings and spending stored and recorded in one place. Usually, though not always, this requires some tech-savviness to navigate an Excel workbook – simply, a spreadsheet with an inbuilt logic capable of handling your requests. There are other tools out there, but we’ve designed one that clears away the dizzying asks of a clumsy spreadsheet and created a smooth, simpler one that automates the numbers for you.
What should I plan for in a budget?
Every budget will ask basic assumptions about your current financial wellbeing. You’ll need to know the nuances of your earnings and your total spending habits for a month – everything from household bills, to entertainment, to the stuff in-between.
A clever budget will tease out all sorts of costs, including:
- mortgage or rent
- any insurances
- any loans; personal, student or otherwise
- any pet pay-outs
- or legal bills
Setting goals in a budget
Next up, your budget will ask for goals.
A goal is both a target and an anchor to your budget-building. It’s the reward at the end of your hard work, but simultaneously can empower your savings with an incentive. Often this goal outlines a financial desire – whether you want to escape debt, or simply free up more cash.
What kinds of goals are popular with budgets?
- Clear away debts.
- Pay-off the mortgage.
- Free up room to buy more.
- Improve your lifestyle.
- Reach general happiness and eliminate financial worry.
It’s important to approach goal-setting sensibly and to allow room for mistakes. Every personal budget tells a similar story of highs and lows. Sometimes your cash might grow, rewardingly; or, other times, it may stumble over the everyday costs of running a house, or having a family. Negotiating space for failure in your budget is a way to reap more rewards, because finances sometimes have to answer to a world outside of your control.
What is an ’emergency’ fund?
When you’re mapping out money, a contingency plan helps to circumvent the kinds of surprise upsets that can frustrate the development of your wealth. When preparing a budget, allowing room for unforeseen costs is almost always a must-have. It’s a common error in budget-planning, mapping out money for only the things you can see, or predict, but not for the things we cannot reasonably forecast.
Planning ahead in a way that accommodates to the unforeseen costs is referred to as setting aside cash earmarked for emergency funds. This is usually one of the early tasks of budgeting, ensuring a kind of buffer amount, that can answer to anything like faulty boiler repairs, unforeseen car damage, or general household upkeep.
Sounding out like a theory, seasonality is simply about how things change in time according to patterns. This means you may want to hold tightly onto your budget for longer than a few months, because statistically spends go through highs and lows depending to the time of the year. In December, for example, the disposability of your income might soar, where other, quieter months might secure you more in savings.
What are the ‘rules’?
Many people find online advice as an easy way to motivate their personal savings. A budget, or advice on one, is kind of like dieting. The web is a forum with sprawling advice that often competes with itself. That means that wisdom from one person won’t always apply to the next. Some ‘rules’ get more truck with the folks who can, in return, find the correct motivation from a style of budgeting that generates happy successes.
The 50/30/20 Rule… explained
In budgeting lingo, the 50/30/20 rule is a sought-after hack to enhance your money quickly and simply. This is a big-picture approach, seeing your financial projections at large, with details sacrificed as a sort of low-resolution image of your money. It’s a slick, easy categorisation of your finances under three sharply divided areas:
It’s a rule that trains the focus of your budget. Rather than fritter away time on detailing a budget, this rule maintains that you should instead focus on these three areas. With your after-tax earnings calculated, you place 50% of your money into funding your monthly ‘needs’; 30% is dedicated to your ‘wants’, or extra spends; leaving, 20% to either tie up debts, or save.
This system may sew success for some, but its inclination to skimp on details and over-flatter ‘spends’ has caused it ill-criticism. Budgeting, learned from this rule, can work to reveal quick insights, or longer, detailed ones. It’s a matter of balancing and personal preferences.
Apps & Mechanical Thinking
If hands-on is less your style, then apps can handle the harder thinking around your budget. The app store is dense with free apps, where some are payable, that can manage your money.
How to create a budget plan
Whilst we talk you through the expectations of building a working, sophisticated and rewarding budget, LifeMarket’s very own budget builder pro will also guide you through the process in a simple, slick automated fashion to help focus your time, goals and money.
Our effective budget-builder has one simple motivation: to help you make the most of your money.
But, where do I start?
1. Organise the numbers
If you want an accurate takeaway, you’ll need equal parts time and patience to build a budget. Slowness, in measure, is a good thing. It can help clip mistakes and boost the accuracy and legitimacy of your numbers.
Next, gather essential paperwork. This is useful in the early mapping of your actual earnings and outgoings. If you base your research on official documentation, over educated guesswork, you’ll firm up more clearly the foundations of your budget.
Get copies of the following (to size up your outgoings):
- at least three bank statements, or in that ballpark. Access at your bank electronically to find these, if the paperwork isn’t there.
- household bills
- credit bills, such as loans or other cards
- pension contributions
- any current savings
- any other subscriptions
You’ll firm up your earnings quite fast by looking at:
- your payslip/s.
- any other avenues of income.
- any benefits, or pension.
If you’re following along with our budget builder, it helps to use these figures to populate the fields in your ‘dashboard’. This phase is more conceptual than the rest, because you’re firming up numbers, rather than actioning anything.
2. Tally Earnings
Record your income, after-tax, and add-in any other earnings, too. This will shore up the starting point of your budget, telling you how your monthly cash looks and feels. Start with the cash that’s coming into your accounts, the money you earn or gain, before looking at your losses. This is a quick calculation on anything earned after-tax.
On the budget-builder, this step appears in the ‘dashboard’ under “What are my earnings?”. Simply populate both your actual income and pair it was what you predict it to be. This colours in more detail for you budget. Your totals will be automatically filled out as our builder does the math for you.
3. Understanding my Outgoings
This means getting a handle on your losses, or the things that eat at your monthly finances.
Your outgoings refer to the routine or extra spends that are deducted from your owned or borrowed money. Jot these numbers down, ideally in as much detail and accuracy as you can – the closer you can get to actual numbers, the better prepared your budget is to handle your cash. Pitfalls, commonly, allude to inaccuracies in your budget. These hurt your planning, precisely because you could under-or-over budget your money.
You can also use this time, and space, to figure out if you’re paying the correct sums (and not being overcharged for anything).
With our budget builder, you get detailed ‘zones’ to populate so you can trace accurately where your money goes. Record your figures, tightly. Go down to the closest penny. Because priority spends will vary between people, our budget builder doesn’t indicate areas that are more disposable than others. Instead, it helps you lay the spread of your outgoings, in order to decide later on the essential stuff. Consult your bills and statements from your earlier research and double-check your math (a total will be auto-populated for you as you fill out the zones in your budget).
4. Get to know your ‘Totals’
Once the sum of your income is firmed up, and your deductibles such as bills have been eliminated, you’ll see a final ‘total’. This is the cash you have left to carry you through the month.
Reaching a total in one fast equation: actual cost of deductibles – actual income = difference in £ value
The total represents the difference between outgoings and incomings, which is what you’re left with. The difference is an important figure and drives your budget’s success: if you’re in the negative, or losing money, you’ll need to revisit the previous stages. Adjust numbers, see areas of ‘fat’ in your budget, the kinds of hurtful excesses that can be lost or, at least, trimmed. Work toward a positive difference, or score. This is equivalent in being financially ‘green’, or set to earn a growth with your money.
On your budget builder, you’ll have keyed out the totals that have attributed meanings. This will tell you, essentially, if you’re going to win money, or lose it. The better you can nudge yourself toward the ‘green’, the happier your finances will look and feel.
You should keep a record of your budget as you try and achieve different financial goals. This can help you spin a desirables into an actual financial reality and one that wins you more cash for your future wealth.
Tip: the more detail you write into your budget, the more variables you open up. A variable is a value that can be tweaked. With this in mind, you can adjust your budget to play around with differences that score you even more savings potentials.
Need help with your budget?
When talking money, it’s a common criticism that saving up enough of it seems like such an ordeal. Yet, budgeting efficiently can sometimes answer to that desire to better manage your money. Taking the time to master your money is at the heart of LifeMarket, which is why we’re offering up our smarts and expertise to those wanting to get ahead. Here you’ll find our budget builder pro, along with tips to winning over more cash. It’s a quick downloadable, easy to edit, and free to save and travel with you. Using tools like our builder, can improve your money:
- grow out more savings.
- reduce fretful waste in your monthly plan.
- reach for higher financial goals.
- train your brain for money and learn how to master your own finance.
Clever Financing with LifeMarket
Become your own accountant with our free budget-building tool and see the truths that your money tells.
Within our builder tool, you’ll see a master ‘dashboard’ that controls all of your spending and earning, helping you discover how money talks.