January is a great time to make a budget plan to help manage your finances for the coming year.
Deciding a goal is often the best way to motivate you to save money – a well-earned holiday, a deposit for a home of your own or simply to have a buffer put away for a rainy day. No matter what the goal is, having an honest look at your finances and making a budget plan can help keep you on track. In this article, we look at how to formulate a budget plan to help achieve your savings goal.
Evaluate Your Current Financial Situation
Evaluating your current financial situation is the foundation block of your budget plan. After all, if you don’t know where you are, how can you see where you need to be? Having a real and honest look at your incomings, outgoings and debts will help crystalise in your mind where cutbacks need to be made, where shopping around for a better deal might be required and ways in which you can reduce your outgoings.
Examine Your Incomings and Outgoings
Look through the last few month’s bank statements, this will help you to drill down into what comes in and where money goes each month. Make a list one side of a spreadsheet or a sheet of paper your income and the other all outgoings. Some outgoings will be fixed but you can shop around for a better deal, for example:
- Energy bills – can you find a better deal? It only takes a few minutes on sites such as Uswitch and Compare The Market.
- Mortgage – are you on the best rate?
- Credit card payments – is a 0% interest balance transfer available?
- Broadband and TV – calling your supplier to see what they can do to make your deal more attractive is a great starting point. If they can’t reduce your monthly payment, shop around.
- Gym membership – can you exercise for free instead? Walking or running in the fresh air or doing free workouts using videos on YouTube?
- Insurances – shop around for better deals for both your car and home insurance. Be sure that you have the same or better cover before switching.
Other outgoings will be variable each month, such as:
- Takeaways and dinning out – the average yearly spend in the UK is £641! – can you cut back and save by bulk buying and batch cook meals instead, so you always have food to hand?
- petrol – can you car share? Is public transport a cheaper option?
- food shopping – if you have Waitrose taste but an Aldi budget, now might be the time to make some changes. So called budget retailers sell great quality food for a very tasty price. Try one shop – you’ll be pleasantly surprised!
- Take an honest look at where you leak money, we all do! Whether it is an online shopping splurge, to disappearing cash withdrawals “I swear I withdraw £10 to get a loaf of bread and some milk and I have no idea where the rest goes!”. If that sounds familiar, this is where your leak is. When you are aware of the leak you can do something about. Try creating a tally of online spends and comparing your purchases with your saving goal, are they as important to you? Rather than withdrawing cash that disappears, try paying by card rather than withdrawing money.
It can be sensible to “clear the decks” before you start to save, looking at your outgoings and in particular your debts. Review your store cards, catalogue credit, credit cards and loans. Ask these questions of your debts: Are there debts that can be cleared? Will it cost you more money to clear this debt off early? Finally, will it save you interest payments to clear a debt? It makes sense to clear those debts that can be cleared that you are charged interest on. If there is an early repayment fee, then it might not make financial sense to pay that one off early.
Set A Realistic Budget
Decide how much you can afford to spend on each area and enter it into your spreadsheet. Be as tight as you can but realistic too. If you are spending more than you earn, cutbacks will be necessary. You don’t need to cut everything out or you are unlikely to stick to your budget plan. For example, if you currently spend £200 a month on once-a-week takeaways, consider dropping this to once a fortnight or even once a month for up to £150 a month saving. You might even enjoy the health benefits too! Don’t forget to budget for an amount to be put away each month for likely one-off expenditure, such as car servicing, repairs, and MOT. It will be less of a strain when the time comes to know that the money to cover these expenses has been put aside, rather than having to dip into your goal money.
Set Up a Separate Account
Once you have scrutinised your outgoings, made savings where you can and decided to cutback on items that are not as important to you as your goal, you can then start saving! It can be a good idea to siphon off the money you save each month into a sperate account. If it sits in your normal current account, it’s likely to be spent!
We hope you found our article on making a budget plan for 2022 useful. The tips and advice given in this article should not replace professional financial advice. If you are worried about debt, you can seek help and support from Step Change who are a UK charity dedicated to giving free debt advice. Similarly, the Debt Advice Foundation also provide free and confidential debt advice.