Starting to budget after years of wishful thinking
edited 4 November 2021 at 12:43PM in Debt free diaries
228 replies 21.6K views
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Your steps are relatively straightforward - IF you want to make things easier for yourself in the future. There's no "black magic" at play here - it is as simple as going back to that SOA you did before, and doing it properly. So establish how much you expect to need to set aside for next year's car costs for example - insurance, tax, MoT test, servicing, depreciation (an allowance against tyres, wiper blades, screenwash, AdBlue if you use it, all those sorts of things) - add the lot together, stick 10% on top, divide by 12 and then set up a savings account with your regular bank - christen it "car account" and set up a monthly transfer for the day after payday for that monthly amount. Bingo - dealt with - it just need a periodic review to check costs haven't increased. You can do the same thing to budget for regular household costs - insurances etc plus an amount on top to cover small appliances that need replacing - holidays, clothing, you name it. while you're setting up all those savings accounts, set up another one, call it "emergency fund" and then set up a regular monthly transfer into there as well - in the first instance this is just for £50 a month while you're clearing debt - once that has gone you'll want to increase that though.
Once you know how much your real outgoings are each month, all you do from there is to set yourself a fixed amount each month for general spends - you may want to include your groceries spend in this to make life easier - and then everything over and above that amount which is left as "surplus" you transfer to whichever debt carries the highest interest rate - at the moment that 9% loan.
This method means that most of the routine "work" is done for you by those automated transfers you've set up. All you need to do is physically make that transfer to the debt each month - something I'd suggest you do just as soon as you know all your DD's etc have cleared for the month.
Your time will be better spent on actually getting this sort of money management in place alongside a proper budget than faffing around trying to find a cheaper rate on that loan - allowing for the fact that you now have the lodger, but even before that your monthly surplus was healthy, if you put your mind to it you can probably have that high rate loan cleared in a matter of months anyway.
I'm sure you're going to say "Oh but that makes it all sound so easy" - well that is because in real terms with an income > expenditure level like yours it IS easy, you do have to want to do it though, and to be quite honest, I'm afraid I'm not convinced you're there yet. I really hope to see you proving me wrong though!
As soon as the 0% deal is over, you need to tackle the loan with 9% interest, that's extortionate and you could have it cleared really quite quickly if you focus on it. Good luck
Edit : I will keep my original comment as I must own up to my mistake. I dont think you are rude and I am making all this very difficult for myself. Had a lot to think about today with all the replies. Will take on board what you have said.
Lots of people have made really good, constructive suggestions here - Andy included - but rather than accepting that the regular posters here have good knowledge on this subject because they've been in debt, tackled paying it off, and have stayed DF since and indeed now even have savings, or because they are currently in the middle of a long-haul tackling debt, and have done this by budgeting, setting aside an emergency fund etc - you seem to be simply covering the same old ground.
Have a read back - take on board the advice that has been offered, and give it a try for 6 months. Just try for that in the first instance, and see how that goes. Andy's right - it REALLY isn't rocket science, you're overthinking the process. People are getting frustrated because they are taking time to try to help you, but that help just seems to be flowing past you. There's a lot of free expertise on here - use it!
I have to admit I dont have control on my spending, I really dont know what to do. I know that simply paying off my debts is not going to fix my problems. Like a few have said I dont have control of my budget and I do see that now. Having a spreadsheet i look at every day isn't getting me anywhere.
Your SOA looks a lot better apart from you still not saving an emergency fund - the next step is to make sure that you really do set aside money for all those things you budget for. Open yourself some online savings accounts (often called e-savers or similar) with the same bank you have your current account with. Car expenses, presents, household expenses, EMERGENCY FUND - set up a savings account for each, and then do a standing order to come out of your current account the day after you get paid. for the Emergency Fund it might be worth making it an account which penalises you in some way for making withdrawals as that will stop you dipping in for non-emergency stuff - if it IS an emergency then the loss of a bit of interest won't bother you.
£11.99 seems a very random amount for entertainment and from what you've said I can't think that you're going to stick to such a small amount. Better to make it £100 a month and then be determined to stick to it.
For perspective - that SOA says you have £1111 a month spare - that is over THIRTEEN THOUSAND POUNDS a year. if you are just "losing" that money, in effect, you are losing more than the value of your cars, each year. imagine having that amount in a bundle of banknotes, and just putting it down in the street and walking away. You wouldn't, would you? well until you get a grip on budgeting, that is exactly what you're doing.
1. Commit to not taking on debt (mortgage excluded) again. You need a mindset that if it's a loan or a credit card then it's not your money, you are borrowing from your future self instead of making sure that you are financially secure to weather any bad luck....and hopefully might even be able to retire early!
2. Start a standing order to overpay your mortgage or pay AVCs to your pension or both. This goes out on payday, start with a small amount and increase it when you have paid off your debts. There are different ways of increasing your pension, look into the best way (I can give you a priority order of what to look at) and there are penalties for exceeding mortgage overpayment limits so check this too.
3. Keep a track of your spend against your budget. This means you don't just look at your spreadsheet, but you update it with your actual spend on a regular (weekly as a minimum) basis. You can create your own or use a ready made one, but it needs to have every spend go into it against a category.
Point 2 takes the money out of your hands so you can't spend it now but will benefit in the future. Point 3 will help you to be more aware of what you are spending.
Bonus point 4 from a financial but also happiness point of view:
If you don't absolutely need it (IE you can't achieve something with an item you already have or could reasonably borrow) and it won't bring you lots of joy and fulfillment - don't buy it.