Careful Budgeting: How to Take Control of Your Finances

author image-crispin
By Crispin Bateman
Updated on Tuesday 22 October 2019

woman sat at table calculating finances

Sit though eleven to thirteen years of school and you will come out into the world with absolutely no understanding of budgeting or personal finance whatsoever! While rent payments, mobile phone contracts, credit scoring, food shopping and more form a substantial part of every day real life, they are given little focus in a land of trigonometry, World War II history, the movement of tectonic plates and Geoffrey Chaucer.

At Compare UK Quotes we do not believe we are really qualified to determine the national curriculum, but we do know a thing or two about personal finance. So whatever information you are lacking, hopefully we can help.

What is budgeting?

Simply put, budgeting is looking at your total income and assigning the required amount (or as much as you can afford towards the required amount) for each thing you need to pay. For a standard single person in their 20s, this could mean putting the right money aside for:

  • Rent payment

  • Council tax

  • Utility bills (electricity, gas, internet)

  • Mobile phone contract

  • Monthly food

  • Clothes

  • Entertainment

  • Going out

Someone supporting a family in their 40s may have a different set of priorities and a more complex budget:

  • Mortgage

  • Council tax

  • Utility bills

  • Loan repayments

  • Credit card payments

  • Car payments

  • Car insurance and tax

  • Fuel

  • House insurance

  • Life insurance

  • Family mobile phones

  • Family gym and club subscriptions

  • Monthly food

  • Children’s clothes

  • Family entertainment

  • Going out

As demands on our finances grow it is easy to allow concise budgeting to slip and find yourself suffocating in a choking cloud of claims on your limited resources.

By taking stock of all your outgoings and forming a strong budgeting plan, you can lose much of the worry and find yourself able to breathe easily once more.

How do I cope when outgoings exceed income?

It is a frightening time when you believe your outgoings that must be paid are greater than the income you have coming in. Money worries are one of the greatest causes of stress, anxiety and depression in the UK and in extreme cases can lead to suicide.

Remember that you are not alone! Many people feel consumed by debt and worry and find it difficult to cope. There are many steps you can take to help relieve the pressure, including talking to friends and family, contacting support services and renegotiating your debts. For the scope of this article, however, we will continue to focus on the budgeting side and how that can help.

Thought one – when you analyse it, you may find that outgoings do not exceed your income

This simple thought is often not considered by people in the midst of a budgeting panic, but once you actually get all the numbers down on paper it can become clear. The first thing to do when budgeting is to write down everything, absolutely everything, that regularly goes in and out of your accounts.

Then add up each side and see whether you are living outside of your means or not – often you will find that you are not, that simply not understanding the amounts you are spending and where you are spending them is creating an illusion that your finances are worse than you think.

Equally likely though, you are spending money where you don’t think you are and haven’t accounted for it. Do you always grab a sandwich or a drink when you drive past a petrol station on the way to work? Does the coffee shop next to the office get a nearly daily visit? Casual food and drink purchases are often a massive outgoing that isn’t calculated into monthly budgets – don’t be caught out. A single £3 coffee every working day is a £60 per month bill!

Thought two – do you really need all these outgoings?

Unnecessary spending is a huge part of many people’s spiralling finances. Take a good look at your outgoings with a critical eye and ask yourself how many of them you could lose tomorrow without worrying. Do you have a gym membership that you haven’t used in eight months? Is there a payment to a charity you signed up for three years previously that you can cancel (no charity wants you to put yourself into debt to give them money!)? Are you the person spending £60 a month on coffee, or worse, £120 a month on crisps and chocolate?

Mobile phone contracts with larger data allowances than you use, subscriptions to more than one streaming TV service, mobile app subscriptions for games you no longer play – the list is endless.

Take each outgoing you don’t need and just cross it out for a moment. Do your outgoings still exceed your income? If so, then you definitely need to lose these excess things, and if not then you’ve found a good way to get back on track.

Thought three – do you know how much interest you are paying?

Letting overdrafts and credit cards run wild without being monitored can lead to a huge amount of interest and charges leaving your accounts. The average £2000 overdraft can take as much as £50 per month to sustain, a high interest rate credit card used badly can cost a similar amount for half the balance. Many people in the UK are paying over £150 per month in unnecessary interest alone – are you one of them?

There are many ways to take that value down to a manageable level. Unsecured personal loans used for debt consolidation can result in a substantial drop in monthly interest and 0% balance transfer credit cards can free you of painful credit card interest payments.

Take a look at all your interest payments and read our articles on personal loans and balance transfer credit cards for more information and help.

Thought four – are you bouncing payments due to the dates they are due?

When you first schedule a direct debit with a utility provider, gym or mobile phone company, they offer you a date for your direct debit to be taken from the bank and you probably simply agreed with whichever one they said, or the 1st of the month – whatever.

Take a look at a year’s worth of statements and analyse the effect that date has had. Perhaps you missed payments because you are trying to automatically send out a payment the day before your salary comes in, or it’s affecting your food shopping when it falls on a Tuesday – the day your family usually goes to the supermarket.

It’s staggering how a small change of date can make all the difference. By managing your direct debit payments, not only do you prevent unwanted unpaid returned direct debit charges, but you also improve your cashflow across the month and the knock-on effect can be incredible.

Resetting your direct debits to a day that suits you takes little more than a phone call. Some companies have a few set dates you have to choose from, while others allow for full flexibility. Work out a workable plan and put it into action.

Thought five – are you really scared of downsizing?

The pressure on us to live beyond our means is intense. We are constantly bombarded by advertising and marketing that tells us we need more things, better things, superior things. A nicer house, a faster car, a shinier washing machine.

Wouldn’t your life be better with a few less things, or a smaller house, and no money worries?

As a species and a society, we like the status quo. It is comfortable. There are times, however, when a shake-up will give you new perspective on what constitutes as a quality life.

When the deficit between outgoings and income is so large that stripping away excesses like gym memberships and takeaways cannot recover the balance, it may be time to look at the larger picture with an open mind.

Planning your monthly spend – how do I budget?

The key to good money management is knowing what is going on. Many people fail to budget properly simply because they don’t know what money is going into and out of their account. It sounds ridiculously simple, but just tracking what money is coming in and what money is going out will make a huge difference.

Set budgets for each expenditure

Set aside some time at the beginning of each month to assess that month’s needs and determine an amount to allocate to each need. Bills are usually easy as you can see from the previous month what they will add up to be, similarly rent or mortgage is static and easy to calculate for.

Fluctuating spends, such as the amount you might spend going out or on clothes, should be planned at the beginning of the month.

Remember to properly budget for interest charges and fees.

If your planned outgoings exceed your income for the month, then you need to choose what to drop or reassess as described previously.

Leave some wiggle room

A budget that matches 100% of your income is never going to work. Life is full of surprises and you need some wiggle room on your finances each month or you’ll find it very hard to keep to any budget you set. Try to only budget to 90% of your income and leave the rest to cover any unexpected costs – if you are lucky, it can help the following month or even become savings!

Stick to the budget

One of the harder things to do is to actually stick to the plan, but for good personal money management, this is essential. If you blow your entire going out budget by the end of the second week, accept that the rest of the month is going to involve a lot more TV and a lot less clubbing!

Track your money daily

Use mobile banking to keep an eye on your money as it goes in and out and ensure that it conforms to your expectations. Most banks have apps and many of them can alert you regularly regarding the transactions on your account.

In addition to apps created by your bank, there are a growing number of third-party apps worth considering that are designed to help you with your budgeting, allowing for the integration of multiple accounts and highlighting the type of each spend to aid budget allocation.

If you go wrong, don’t worry

Budgeting is easy but sticking to it is hard, and you will slip up multiple times in the first few months. Take these mistakes in your stride and don’t let them push you to give up budgeting – just try to do better next time!

At Compare UK Quotes we have a library of articles to help you with your personal finance, just browse our website for more interesting information.

Latest News