How do you decide where to allocate what money to?

JustAnotherSaver

I've been spending my break times at work reading more about mostly retirement planning but just financial planning in general. I can't ask anyone i know in person about this as they're mostly a spend it while you have it bunch so again i've to come online...


How do you allocate what goes where with your money? To explain better:


We all have an income, weekly, monthly, whatever. For some people like my wife (for e.g.) it's the exact same month to month but for others (like myself) it varies (in my case it can be quite an amount in terms of percentage).


From this you have to cover everything. I guess we all start with essentials - bills, food, travel (be it your car, bus, train etc) unless you walk.


Now unless i've forgotten something, once that's taken care of you're left with a remainder. Like some of the people i work with you may pee it down a drain on a Friday night, all of it, or you may start allocating it.
Day to day savings or at least money in the bank in easy accessible cash - car needs MOT, washer needs replacing etc.
Retirement, be it pension, ISA or whatever your approach
Enjoyment - eating out, socialising etc.
So on & so forth.




I'm just wondering how you decide to allocate how much goes to what category kind of thing. What's your thought process. I'm just curious how others do it.




What sparked my interest in the above was do any of you have a limit as far as easy access cash goes before you put it elsewhere? How do you decide what that limit is & where do you put the surplus?
All thoughts that have passed through my head.


For example i imagine £1million in cash in your current account (purely an extreme example) is too much for most people and you'd have X-amount of that in cash whereas the remainder would be elsewhere making your money work harder than just the whole million in a current account.


So yeah, just wondering how the different people manage their money, how they allocate how much goes where. Percentages of income i guess would be better rather than amounts.


Hopefully i've explained myself ok. If not then apologies.

Novice_investor101

From pretax gross salary -
- 8% into pension by sal sac, which is to get the max employer contribution.
- £50 a month into a sharesave scheme
- £10 health insurance through work.

After tax from my bank account:
- all DD's for monthly bills gone by the 1st of the month.
- standing order of £50 into Premium bonds
- DD into stocks & shares ISA
- DD to LISA
- Standing order of £120 a month into a separate savings account to pay for once a year bills like car insurance etc
- all the above happen on the day after payday.

What is then left in my current account is mine to spend as I like, knowing bills & savings are already sorted. Grocery shopping is included in what's left but I live alone so it's about £50 a month at most, usually less.
Any money left at the end of the month goes to premium bonds, which is my cash savings.

I hold 10 months of living expenses in cash as an emergency fund. Anything over that is invested in the S&S isa. The LISA is for retirement. I'll save up to buy things like a new car or holiday etc. Sometimes I'll take money from the emergency fund for wants rather than needs but I always replace it within a couple of months. Or I'll take money out to purchase fund units in a dip to average down my book costs.

LHW99

What NI 101 says above is great - if your income is reasonably regular, but if its not, DD's for savings may not be suitable. We had an irregular and fairly low income for quite a number of years, so at that time, only the important stuff - utilities, mortgage, insurance etc were on DD. Then came an allowance for essentials such as running the car, food and ensuring the kids had whatever was needed for scholl etc. What was left eaxch month (if any) was then split mainly between instant access and longer term savings accounts, ready for the months when income didn't cover the essentials. When there was an occasional additional amount beyond that available, it would go into investments, roughly 50% each to ISA / SIPP. If the longer access savings built up well, that was where holidays or larger purchases were funded from. Percentages are difficult to give, because they would depend on the total available each month.

MaxiRobriguez

Salary varies but averages out around £60k and I salary sacrifice £1k a month into pension, which typically leaves me with £2.6k per month post tax.

Of that, £850 goes into the offset mortgage to pay off the mortgage debt, and another £400 or so on bills. Mortgage savings part then gets topped up with £750 which sits in the savings area,. All of these are DD's/SO's and go out within days of salary being paid in, which leaves us with about £700 a month to live off, which seems a lot but my partner struggles financially so that covers us both in terms of food, car, essentials and then whatever left put aside for a holiday.

The £750 p/m mortgage savings I accumulate is then used to transfer money ad-hoc to a S+S ISA I have when opportunities arise.

I've used actuals rather than % so you can choose whether to use post/pre-tax percentages.

Novice_investor101

I never worked in %'s for any of my cash, savings or investment outside of the pension - it was always based on £ amounts in line with what I earnt & what I could afford.
As I've had pay increases these £ amounts have increased as well. I have a spreadsheet that tells me what % of my after tax salary these all take up but I don't really pay much attention to that.

atush

No1 make a budget of all normal expenses. Add in a separate amount for normal yearly expenses like council tax, car service, holiday, home etc. This should be kept in cash, normal expenses in current acct, one off or yearly in savings.

No2 Cash emergency fund- can be added to savings in no1 or separate. Once this reaches a suitable amount (3-12 months outgoings) you can stop adding and add more to no 3/4
No3 pension
no4 S&S isas

What amounts these will be is subject to the individual's income and outgoings. A basic leisure sum can be budgeted into no1.

Split your money into all these locations by priority, making sure no3 gets you your max employers contribution.

CarbonImage

I'm in the position of having a wildly varying month to month paycheck, but I do have the security of a salary that underpins this. So my monthly planning is all based around what is doable with my base salary, including a miscellaneous spending allowance of £200.

Commission, bonus, and overtime payments go into savings, pension, and entertainment at roughly 70/20/10% split. Once I've saved for my wedding this will change to savings/mortgage/pension/investments at probably 30/20/20/30. This should coincide with a huge pay jump for my OH so we will probably adjust our miscellaneous allowances to be a bit higher to account for that.

barnstar2077

The key is to set a budget and then stick to it. So for instance I have an allowance of 11% a month for food for myself. I can go over that no problem, but if I do then I take the money from my spending money allowance (15%) and not from my pension or ISA contributions.

Being organised has really helped me to invest a large portion of my income. When I first bought my house and started paying the bills I opened another account with my bank and through online banking set up a transfer every month from my current account to the new account to match all of the direct debits I set up to go from there (23%) It transfers over automatically on the 28th. Then, leaving the food + Spending money in my current account I transfer the remainder into my SnS ISA (12%) and SIPP (37%)

The above percentages are from my net pay and do not include the deductions from my works pension. I have a third bank account with a small amount of emergency money in that I can use if something breaks down etc.

The percentages don't quite add up as I have rounded them up or down. I always work from a spreadsheet with pound amounts and not percentages, but have shown them here as that is what you requested.

barnstar2077

Not sure how useful percentages are though, because if you are earning a thousand pound a month and spent 10% on food people would say you were not eating enough but if you were earning three grand a month and spent 10% on food you would be considered a glutton where I come from (for a single person.)

Another thing about budgets is they are so dependent on which part of the country you live too.

Terry98

I cannot better any of the replies you have had so far but a couple of other thoughts are

JustAnotherSaver wrote: »

For example i imagine £1million in cash in your current account (purely an extreme example) is too much for most people and you'd have X-amount of that in cash whereas the remainder would be elsewhere making your money work harder than just the whole million in a current account.

If you are thinking about saving and investing spread your risk and don't put all your eggs in one basket.

The one thing that has helped me the most in managing my money is the free programme MS Money.These days there are apps that can do a similar job but I have got 30 years of data in MS Money so I don't want to lose it!

Apodemus

Immediately after pay day, I transfer 10% of pay (calculated after tax/NI but before the deduction of pension) to my long-term investment fund. All dividends also go back to the investment fund.

I keep a track of, and categorise, all my regular outgoings and transfer 1/12 of the annual sum for each heading across to a “bills” account on the first of each month by DD. I always round up and over the years the sum in the bills account has built up to the extent that it now has the equivalent of about ten months forward expenditure in it. I also transfer a depreciation element across to this account to cover large capital items (on the basis of 10% of price in the month of purchase, then straight line to zero over 5 years). Part of this account sits in a current account with DDs/SOs for the regular outgoings and the surplus in Premium Bonds.

I also transfer a sum to my credit card on pay day to cover the next month’s vehicle fuel costs.

The rest remains in my main current account for small day-to-day costs and at the end of the month I use the residue to clear my credit card balance(s) and any remaining surplus is transferred to a cash savings account. Of course, if the month end accounts show a deficit, the transfer is from the savings account - but I make the point of balancing the month out without stealing from the next month’s account.

Perhaps it’s all slightly OCD, but I’ve had chaotic finances in the past and don’t want to go back there!