Modular Budgeting or Potting Cash - A Sob Story!?

Cash-Strapped.T32

Wow, thanks for all the input people's :beer: - Much appreciated you've given me a lot to think about!

Right then, I've read all the points you've made, seems like everyone has it sorted.
Below are just a few of the points I liked;

"Pay yourself first" (think it came from Alvin Hall on his TV money programme)

Yeah I like the sound of that - It translates quite literally too dunnit?
Treat yourself as a mini-bank; "lend" your money to the savings-acc in exchange for interest, and only take cash out of this earnings-generating pot in order to cover your overheads..

I honestly never thought of it like that before today - It's amazing the difference it makes just by looking at the situation from a different PoV!

tellmeitsfriday wrote: »

It feels "naughty" to spend out of the savings account!

Oh! You naughty sausage; yeah I now what you mean mate, that's another reason behind my blatant self-manipulation if you hadn't guessed.

I don't budget 'specifically' for savings, since it is taken as read that my income, minus my spending budget will be a positive figure, and that is my savings.

This is exactly what I meant when I said if I were organised like this, I would not need to manipulate myself.

I thoroughly agree with you though & o/c you're right, I know I *can* manage to spend less than I earn, and o/c by definition anything left over after spending is savings, but by pre-allocating at least a small amount to savings, I hope to maintain 2 very different "pots", which will be used for different purposes.

Your method is of course the most simple & effort-efficient, but at the same time as getting my finances in order, I also need to make up for years of tardiness & try to build up some kind of savings as quickly as possible. (I know, don't we all!?)




Ok, I think I have come up with a real plan here, taking into account all the advice you've so kindly provided me.

I took about 20 minutes to amend my existing budget spreadsheet - Pictured here is the month-after-next, Dec into January next year, which conveniently coincides with my personal loan coming to an end (yay).



This uses rough-sketch values of course, but I hope it helps show what I mean;


* The idea is I carry-over the balance from prev-month as you would expect.
(12 copy/pastes later & you have the year budgeted out, barring a bit of amending for the outlays like taxes, insurance & other non-regular outlays)

* The first category are payments that need to be made asap, and will come straight out of the curr-acc.

Obviously, as transactions are made in real life, the values are moved into the "adjust" column & I edit my current balance.

* After that, I pay the amount of cash I have budgeted to spend on my regular expenses into savings, pictured here are 3x accounts.
- Natwest 2.85% which is my main savings,

- an HSBC e-ISA which is basically just a small overdraft replacement I fund from savings (it transfers to my HSBC current account instantly, so is more effective for the purpose of an overdraft replacement than the Nat-West acc, even with the faster-payments feature)

- & the FirstDirect reg-saver, which I hope to have opened by the end of this month & save £2500 in it by this time next year.


* At the end of each week, I make an FP payment from the NatWest 2.85% account back into the current-acc, in order to fund the coming week's expenses.
This includes things like rent, bill s/orders, etc.., the idea is to only fund the current account at the last possible minute (well, a weeks' grace will do)

* As each week passes, the amount of money earning interest @ 2.85% will of course reduce by roughly 25%, but even on the last week it will vastly outweigh the amount of money I would be able to save using the end-of-month method.


* Finally, at the end of the month, I hope to have a surplus, as pictured here (£88.16).
If I'm feeling confident, I can then increase the amount I put into the 8% reg-saver or 2.85% instant next month.

If I'm feeling nervous, I can put the surplus into the HSBC 1.74% to bolster my overdraft-replacement.
(it transfers to my HSBC current account instantly, so is more effective for the purpose of an overdraft replacement than the Nat-West acc, even with the faster-payments feature)


*..And in the event I have to spend a bit more & it looks like I'll finish in the red, I can draw upon that weak HSBC account which I fund roughly £25 a month to avoid using my overdraft, or at least mitigate it (my HSBC overdraft is very cheap in the scheme of things, but obviously any use costs money).


So, an improvement on my earlier plan? I think all in all it's been a pretty-damn good use of a day-off tbh.

It's not the kind of thing i would suggest to someone who isn't on the internet every day, but I am, be it home or work so I have no doubts of my ability to keep up with the transfers of cash, I just hope that I can keep it all coordinated 9hence the geeky-detailed colour-coded spreadsheet! :rotfl:

sveika

Glad that you're happy with your plan now.

getmore4less

Step back


A budget is the plan of how you intend to allocate the income.

Allocate all the income for at least a year to the catagories of spending/saving.
Also do a 5 year forcast for the bigger items that need saving for(new bike)

The reason to do it over at least a year it normalises the spends for comparison purposes and making the choices of how to allocate limited funds.

Remember you can only spend a pound once.

£10pw does not seem much but is £500py so that could be 1 takeaway a week for a year or an extra holiday.

The budget should ballance and include everything. the trick is deciding the level of detail you want to go and how to prioritise the spends once the essentials are covered.
Details on the discretionary spends is where many find the money going.
eg don't include drink in the groceries, food is essential seperate that out from the rest.
In more detail meat is expensive you could seperate that out from the rest

It is all about choices and people often can't afford things because of the choices they make.

The spreadsheet is there to track that you are on target and make adjustments to the plan when you find you got things wrong or missed something off.

If there is an item you forgot then add it into the plan and adjust the other catagories so the budget ballances again, underspend on a catagory reduce that catagry and allocate the funds elsewhere in the plan.


Once you have a plan that is essentialy a correct relection of what you want and reality then where the money is makes little difference it is just moving money around to get the best interest, no need for pots or slush funds, everything is in the plan.


Note that savings need a reason otherwise you will just spend them.

Short term savings are for things that come up in the next 12months eg. an annual bill.

Medium term the next 5+ years, replacement transport, toaster etc. new things as you feel you can spend a bit more. rememebr for every new thing you buy you need to have the replacement cycle in the budget.

Long term are for the future to support you when there is no earned income so pensions ISA shares etc.

Long term is the one a lot of people have a problem with so the best way is to work backwards, decide how much retirement income you want and when you want to retire and work out how much you need to save that will give a rough figure starting now.

eg: (in todays money so inflation is built in to the saving rate/returns)
If you are 25 and think you can live on £1k per month retired at 50, assuming a 5% return on investennts over inflation.

You need to save a pot of £240k saved over 25 years so about £420pm.

Cash-Strapped.T32

Thanks Sveika - I appreciate you checking back on this - I haven't dropped off the face of the earth.

@GetMore; You make some very good points, but I don't want to just crowbar a response in so I'll expand a little more below..

I didn't plan this is a "diary" thread, so I won't get into that level of detail, but I'm starting to put The Plan© in place.

FD current account is in place & I have IB set up. This is the one to be used as a feeder-mechanism for the Reg-Saver, target is to have put £1.5-£2k in there by this time next year, which will give about £60-£75 in interest over that time, depending on how the payments go in.


Also provided was a paying-in book, something I've not seen in donkies' yonks, which will hopefully encourage me to bank those scraps of change I tend to keep but never use so it goes on coffee at work..
If I start using the paying-in machines to drop off bits of saved cash it won't be a get-rich scheme but it'll all help.

getmore4less wrote: »

Step back
A budget is the plan of how you intend to allocate the income.

Allocate all the income for at least a year to the catagories of spending/saving.
Also do a 5 year forcast for the bigger items that need saving for(new bike)

The reason to do it over at least a year it normalises the spends for comparison purposes and making the choices of how to allocate limited funds.

Remember you can only spend a pound once.

Forgive me shrinking the text, but it's all good stuff & I wanted to keep it intact.

I totally agree with your logic re; budgeting, you could make an argument that my spreadsheet isn't actually a budget at all, it's more of a working document/real-time log/spending plan amalgam. :rotfl:

I'm thoroughly ok with this state of affairs, tbh I just call it a budget for ease of conversation but no mate, I don't kid myself that it's much of a long-term aid in it's current form.


To be totally honest with you, the plan is, there is no plan.

That's to say, that I'm only just coming back into the world of being in credit & the plan for the coming year is simply to scrimp & save up as much cash as possible, to live as frugally as I can, so that this time next year I can make proper long-term plans, about mortgages, better job, possibly upgrade to a social-life (;)), etc..

I currently live as frugally as I can given the current circumstances, barring a bit of improvement in my execution (learning the cheapest way to do certain things, etc..)


Again, honesty dictates I admit that I have purposefully avoided budgeting-out the coming year - I will, but I have a very small payrise due at the end of Nov, so I wanted to wait until my next pay-slip before I fill in the next year - However, all those things you talk about (well, some of them ), will be included - Which brings me on to..;

The budget should ballance and include everything. the trick is deciding the level of detail you want to go and how to prioritise the spends once the essentials are covered.
Details on the discretionary spends is where many find the money going.
eg don't include drink in the groceries, food is essential seperate that out from the rest.
In more detail meat is expensive you could seperate that out from the rest

It is all about choices and people often can't afford things because of the choices they make.

Yup - I know from experience from "budgeting" in my head (usually related to how many more pints can this pile of money get me before i have to crawl home.. ) leads to Bad Things Happening, so I deliberately budget more than I know I will need for all my regular spends, including food/drink, petrol, etc..

Bills & accommodation are fixed, so it's the weekly expenditure lines which have the ability to vary so yeah, when I know petrol is say, £32-£34 I'll call it £45.
Where food & drink (not beer) usually cost me £18 I'll call it £25, that kind of thing.


These are just examples, but you get the gyst; When I first started messing about with spreadsheets i recognised the danger in thinking I had covered all my spends, making plans based on it, then running into problems later when more expenditures start popping up unexpectedly.

I go down to weekly detail, I usually update more often but I find this works best for me, my regular expenditure is pretty even through the month & breaks down into weeks quite well, and if I work on a system of keeping one weeks' worth of expenditure in my current account at all times as a reserve, it lets me transfer-in the coming week's expenditure into my current-account on a weekly basis, while always keeping a suitable reserve to ensure I don't run dry due to bank holidays, etc..

The spreadsheet is there to track that you are on target and make adjustments to the plan when you find you got things wrong or missed something off.

If there is an item you forgot then add it into the plan and adjust the other catagories so the budget ballances again, underspend on a catagory reduce that catagry and allocate the funds elsewhere in the plan.

Yes! I do this currently, although I admit that I have very little wiggle-room sometimes, but yes that's why a spreadsheet is so useful.

Once you have a plan that is essentialy a correct relection of what you want and reality then where the money is makes little difference it is just moving money around to get the best interest, no need for pots or slush funds, everything is in the plan.

Yup, again agreed in the main, and the NatWest account will serve this purpose, it'll be the main receptacle for my wages, which will be divvied-out as needed on the weekly basis mentioned above.

However, I planned to maintain the weaker HSCB account at about £200 simply because I know that even at 11pm on a Sunday evening before a bankie, I can transfer-in cash to my current account, making it a replacement overdraft.

This is because I do still fear making a !!!!-up in my budgeting - I'm not yet so experienced that I dare making predictions that will cost me dear to get wrong, and I can almost guarantee that on a small bike like mine, commuting 5/6 days a week *something* will go wrong that needs fixing the same day, so I really do value the knowledge that the slush-fund (I like that name ) is as instant as it is..

It gives me reassurance that I'm able to cut my current account so fine as to earn as much interest as possible;
The idea of using my current-account balance to earn extra interest is negated if I pay even the slightest debit-interest on an O/D so I must keep myself in credit, plus it's important to me that I no longer use it as a crutch - I'll make my own & keep it out of the way )


Finally, the 8% FD reg-saver is a treat for myself - I want to be sitting here next year & know I've got £1500-£2000 coming my way, and be in the position to decide if I want to start a small investment, or upgrade to a nicer bike, or whatever.
I know that I can afford it, it's only a £30p/m commitment, but I want to challenge myself to make the target in 12 months, which will require £150-£200 odd a month - that's the personal manipulation bit, to keep me motivated to maintain the main budget above, so that I can afford to "indulge" myself topping up the Reg-Saver.

You obviously understand all the factors extremely well, so I know that my approach won't be any kind of revelation to you, but hopefully you can see now why I'm faffing around in this way - part caution & part blatant self manipulation.

The HSBC, to keep it small but allows truly instant access as a backup to forget about until a real emergency.

The Reg-Saver for pure rate, but obviously kept on the side due to being a reg-saver, and finally main savings in the NatWest instant access, which is the "sloshing around" money you talk of - This is the account that I will be keeping an eye on for better-rate accounts, moving to the better rates as they become available.



Wows, I've not even started on the more long terms stuff yet, I will have to come back & read the rest in more detail mate otherwise this post will probably need a page to itself! :eek:

getmore4less

a couple of followup points

I tend to keep but never use so it goes on coffee at work

Have a catagory for this work food/drink and set a budget.
I used to allocate enough for home made sarnies, pub once a week and a curry lunch with the lads once every 2 months.

Yup - I know from experience from "budgeting" in my head (usually related to how many more pints can this pile of money get me before i have to crawl home.. ) leads to Bad Things Happening, so I deliberately budget more than I know I will need for all my regular spends, including food/drink, petrol, etc..

Bills & accommodation are fixed, so it's the weekly expenditure lines which have the ability to vary so yeah, when I know petrol is say, £32-£34 I'll call it £45.
Where food & drink (not beer) usually cost me £18 I'll call it £25, that kind of thing

So you do have a plan, just flesh it out and make sure it ballances then start to make it real.
Waiting for the pay rise to do this is not needed you know allready that any rise will be allocated to savings anyway:D

A budget is live thing continualy changing to reflect reality as priorites and costs change.

What happens now when you actualy spend say £35 on fuel, does that other £10 gets spent on something?
This is OK if tracked because another catagory will be over and need adjusting, so you have to bring the £45 down to reballance, or does it just dissapear getting spent on something but with no record?
It should end up in one of the savings catagories which is then increased on the plan and the fuel reduced.
When you know fuel is £32-£34 call it £35 not £45 and allocate the other £10 properly.
The problem with a budget that says £45 if that fuel can creep upto £45 before the budget is blown.

I currently live as frugally as I can given the current circumstances, barring a bit of improvement in my execution (learning the cheapest way to do certain things, etc..)

The great thing about a ballanced budget and some tracking history is it starts to tell you where you need to look and can quickly highlight where things are going off plan.
So rather than being a bit ad hoc just trying to be frugal you become proactive and tackle each catagory in turn to look for the savings and to compare the discretionary spends against each other for value.

Bills & accommodation are fixed

You have to challenge every spend catagory, bills are not fixed they can be changed and need regular review, are there cheaper providers do you have any that you don't need or can eliminate or change to some other product.
The classic examples here are usualy
Cable/Sky will freeview do the job.
Mobile phones, there are still near to Zero cost cash back deal that are cheaper than PAYG.
regular bills are the easy ones to overlook because you tend to just accept they are there and need paying.

This is because I do still fear making a !!!!-up in my budgeting - I'm not yet so experienced that I dare making predictions that will cost me dear to get wrong, and I can almost guarantee that on a small bike like mine, commuting 5/6 days a week *something* will go wrong that needs fixing the same day, so I really do value the knowledge that the slush-fund (I like that name ) is as instant as it is..

You know you need to keep this bike going so budget for it.
It is not a slush fund in the budget it's the bike maintanence fund.
Now this is potentialy an issue because you don't know how much it might need to be so unlike the fuel which is relatively well known you need a different stratagy to try to do estimates(these may be out but something is better than nothing to start with)
Break it down, you know you need somethings so MOT, regular service, tires, brakes etc can all be averaged out over the year this is money that will definately go out and can be estimated quite closely, then we need an estimate for breakdowns/repairs, a good trick here is to also think about replacement since they are related, too many breakdown/repairs you get a replacement. So I would take this approach if the big non planned repair bill is likely to be say up to £200, save for this as fast as possible then reduce the monthly amount to a steady stream say 5%(one major breakdown every 2 year) £10pm when this fund reaches say £300 you move the £10 to the new bike fund which is running along side if it drops below £100 start rebuilding.
This way you have the funds and can cover most eventualities.
The idea is that long term you have a relatively steady state allocation of your money to transport along with the buffer funds for repair replacement which can be easily seen on the budget.

When looking at an upgrade you can estimate the new costs and make an informed choice to increase expences(or maybe reduce if more economical) or spend the money elsewhere and keep the old one going.

As for day to day money I would seriously look a credit card for this(paid off in full each month) this way you get a bit more interest on your savings maybe some benifits and less need to monitor your accounts or get stuck by a spend that is unpredicatable even if planned.


As an aside the act of tracking every peeny is important because it starts to instill a better sense of value and the need to prioritise, having £20s in you pocket that just seems to disapear stops, it's £5 on coffees, £3 sandwich, £2 snack............ they all add up over time so need recording.

Wows, I've not even started on the more long terms stuff yet

It takes time but essential is the data that reflect reality and has as many of the spends that will happen covered.
An emergency pot is still needed but overtime this gets reduces as emergencies only happen once since they get put into the plan after they happen.

Longer term, goal setting and working back can be a reasonable stratagy, a bit like the bike situation you have a goal to be in a possition to make the choice in a year to a new bike or not through saving that is an excellent goal because if you do decide to get one you have saved for it, if you change your mind the money becomes the starting pot for a new goal.

ian_h

Joe_Bloggs wrote: »

I also have a savings account that lets me pay bills via BACS.

J_B.

JB, I'm just organising my budgets to ensure e.g. Travel is all accounted for out of one account - out of interest which savings account is it that you have that allows BACS?

Cheers

Ian

Cash-Strapped.T32

getmore4less wrote: »

a couple of follow up points

Follow-up? Hell I've had medical examinations that go into less detail; You've clearly put time & effort into this & I'm grateful for the way you've put it all so clearly;
Everything you say *should* be obvious to me, but I suppose that's the difference experience makes, thanks mate.

I want to try & do justice to the time you put in so here goes;

Have a catagory for this work food/drink and set a budget.
I used to allocate enough for home made sarnies, pub once a week and a curry lunch with the lads once every 2 months.

Very good point, and one which I have (kinda deliberately) overlooked in the discussion so far.
Not for any meaningful reason, I tend to allocate a tenner a week to socialising, which will carry over to 20 the next week if i don't go out, etc..
That "budgeted" amount tells me in advance if it's going to be a quick pint on the way home, or the tenners have carried over a few weeks it'll be a Sunday lunchtime & several pints, whatever..

Now, that's a nice theory but of course in real life you never just spend a tenner exactly, or whatever you've allocated on a spreadsheet, it is only a guide.

However, if truth be told I've reduced my going-out so much, that going out nowadays lives in the occasional-spends category, rather than being included in the regular outgoings.

So you do have a plan, just flesh it out and make sure it ballances then start to make it real.
Waiting for the pay rise to do this is not needed you know all ready that any rise will be allocated to savings anyway:D

Yup you're right, it's just a "date" I fixed in my head ages ago & didn't want to budge..
As it happens I filled out until April just before I browsed back to this thread, nice timing!

+2.5% of current pay, so it's fairly easy to work out a "rough" guess by increasing my post-tax wage by 2% (for a safe margin for error).

A budget is live thing continualy changing to reflect reality as priorites and costs change.

What happens now when you actualy spend say £35 on fuel, does that other £10 gets spent on something?
This is OK if tracked because another catagory will be over and need adjusting, so you have to bring the £45 down to reballance, or does it just dissapear getting spent on something but with no record?


It should end up in one of the savings catagories which is then increased on the plan and the fuel reduced.

Good points again, and I currently do do that.
When I say I update more regularly, that is I will allocate say, £35 that week.
As I get home & pull the receipts out, I knock that value off my current balance, and wipe out that week's petrol expenditure off the sheet (actually I shift it across to the adjust column, so I can see what was spent later on).

This usually (hopefully!) results in my predicted month-end balance increasing slightly, as I spent a bit less than had been budgeted.

The plan will be that this small surplus will be added to savings, hopefully not spent on some other item, and certainly nothing worth more than a few pence will be left off the spreadhseet.


The precise mechanism by which the surplus always remains in savings is this;
* All my budgeted cash goes straight into savings.

* I pre-allocate (say) £45 for next week's petrol into my curr-acc.

* Come the end of the week, I have only spent £35 on petrol - Yippee for calm throttle control!

* Because I tracked how much I spent (or more precisely, how much extra I didn't spend), it allows me to allocate that much less to next week's petrol to my current account.

* By this means, I always keep as much as possible in the savings-acc, earning a few extra pence.


Unless that is already what you meant, when you speak of rebalancing?
Anyway, no the money definitely doesn't want to dissatisfy on anything else - in fact I pay a lot of attention to the margins I "get back" from these over-budgets.

When you know fuel is £32-£34 call it £35 not £45 and allocate the other £10 properly.
The problem with a budget that says £45 if that fuel can creep upto £45 before the budget is blown.

I only half do this, & tbh I probably ought to have another look at the way I work it out.
For clarity's sake, this is what I currently do;
Again, I must admit that the further forward I plan, the larger the margin of error I add in (I was taught "predicted outlay plus 10%, 20% if it's outdoors" ).

Using the petrol example;
I will plan £45 for next month, but when I'm looking at next week's lines, I will adjust this down to what I actually expect.

This is probably also a bit of self-manipulation, because I "seem" to get richer as the month goes on but it's a nice bit of self-deception so I think I'll stop talking about it now.. :rotfl:


The point about petrol could creep up to £45 before the budget is blown is something I had not considered - In fact yeah it opens up whole new ideas because in the second I read that sentence, I realised to my horror my budget is actually predicated on a *massive* assumption, which is that I always, *always* earn more than I spend..

Petrol is the example we're using, but it could be anything;
My budget into the future is £45, because I know that's a "safe" margin for error, because it's so much more than I usually need.

When we get nearer the time, I reduce-down the amount that I'm allocating to petrol, to give me a clearer idea of what my end of month balance will be.

As it currently stands, this is the only mechanism I have to alert me that I'm over-spending on petrol, other than if I happen to notice it on the forecourt.
If my budget is blown, that's because I'm predicted to lose money this month, I'm not actually using it in the same way that accountants would use a budget (well, some of the ways they would).

I will have to think on this a bit more.. :cool:

The great thing about a ballanced budget and some tracking history is it starts to tell you where you need to look and can quickly highlight where things are going off plan.
So rather than being a bit ad hoc just trying to be frugal you become proactive and tackle each catagory in turn to look for the savings and to compare the discretionary spends against each other for value.

This is where I really don't have much of a plan tbh.
I must stress that even though I've been using this spreadhseet (or a similar form) for about 6 months now, I've been only bobbing about the zero-mark, and have often been well below, until the end of this current month we're in.

It would have been sooner, but I had some rather large, but legitimately unavoidable spends to make in the last couple of months - Anyhow the short(er) version is that now that I'm emerging from all that is 8exactly* the time to start putting your advice here into effect.

I do look for savings in a much cruder way that how you describe, and some evening spend hours tweaking various values of this item or that to see what effect it will make on that large purchase a couple of months away, but not really any more than that - part of me flinches away from planning more than a year away, which is probably just me being soft..

Ack, again it's half-twelve & I've still got tonnes more material to go through - I'll come back & go through the rest of your stuff tomorrow, thanks for everything so far mate, going through your posts is really forcing me to consider what I'm doing in a way I don't normally. Cheers! :beer:

getmore4less

Not for any meaningful reason, I tend to allocate a tenner a week to socialising, which will carry over to 20 the next week if i don't go out, etc..
That "budgeted" amount tells me in advance if it's going to be a quick pint on the way home, or the tenners have carried over a few weeks it'll be a Sunday lunchtime & several pints, whatever..

This is a good reason why thinking around the year mark is good, you allocate £520 for the year and track the average, allthough Idealy you want to stay ahead sometime you will spend more up front, Xmas is an example where some catagories may be over for a month.

The reality is that you fluctuate the savings to take acount of this variation but at the end of the year the savings target will be met.

Some people like to work on calender or financial years for the main budget but another approach is to work on a rolling 12 months updating mointhly or quarterly.

occasional-spends category

Not fan of occational spends, ok some weeks you may not spend on a catagory, but over the year you want a total, so catagorise everything.

My budget into the future is £45, because I know that's a "safe" margin for error, because it's so much more than I usually need.

you need some margin for price changes or some extra miles but again this just needs to be a average over a year type total.

I do look for savings in a much cruder way that how you describe, and some evening spend hours tweaking various values of this item or that to see what effect it will make on that large purchase a couple of months away, but not really any more than that - part of me flinches away from planning more than a year away, which is probably just me being soft..

This get relatively easy since things tend not to change, so the next year is the same as this year +/- fiddle factor, the important thing to identify is anything that will take more than a year to save for needs adding in so you know when to start saving.

As I think I said before the plans can change but the key to getting them right is the records of what has actualy been spent.

What I found was that after about a year the spends stablized and you can let go a bit still track but the analysis can be done far less frequently. and when najor changes happen, pay change or new goals.