How to actually budget??

Ellie_BB

Ok, I admit it, I'm rubbish at budgeting! I am newly debt free (partly through hard work, but also partly thanks to the pandemic restrictions). Even after all this time, I still feel like I'm learning to be a DFW. I've used spreadsheets for years, but it has recently dawned on me that my 'budgeting' is more accurately described as watching myself overspend and going oops! I have revamped my spreadsheet and set up pots to try and plan better for non routine spending, but am already getting into a muddle and am really worried I'll be running up debt as soon as covid is sorted and life goes back to normal.

I have put money in my virtual pots, but this month I need less in some pots and more in others, and I don't know whether I simply take money from one pot to top up another, or let my sheet show that I'm over budget in a category. I know in theory the idea is not to spend more than I have in a pot, but if I need more than 1/12th of my annual cleaning supplies now, how do I manage that?? I feel really foolish for not having a better grip on this after all these years, but need your expert views - how do you manage budgeting?!?!

Teapot55

Look at what your income is going to be this year. Compare it with what you spent last year. Plan what you can spend this year from looking at these two.

Some stuff might not have happened last year (like something breaking) so you could look back further than one year to get clues about things to plan for. 

The other thing is ‘cashflow’. As you’ll know, problems with cashflow happen when the bills in one month come to more than the amount coming in. It means maybe knowing how much is going to be coming out and not buying any clothes that month and spending less in the supermarket. 

madaboutspots

Hi Ellie_BB 

So budgeting can be confusing because even without marketing, temptation and peer pressure, our lives change with time. To sort and (very importantly!) keep to a realistic budget you need to be firstly honest and thorough and then regularly check/re-assess and adapt as your life changes happen or bills change for any reason.

To start it would be incredibly worthwhile you getting as many financial statements together, in order going back over the last year (bank, CCs, loans etc). I would put a line through every single item that wasn't a cost for a NEED. This way you are only looking at things you HAVE to pay for to survive/live. Holidays, non-essential clothes, nights/meals out shouldn't be included here. 

Add up all your costs for the regular payments and divide by 12 as these are less likely to change too often unless you change something. Rent/mortgage, c tax, energy, broadband etc. Then you want to take the more variables like car maintenance and insurances, work out which month they need to be paid and divide the amount by this so between now and the next bill you have enough (including a small buffer if you can afford it) to pay outright. EG: bill due in June = 5 pay days so full amount to be allocated in those 5 months. 

You can input all of these figures into the SOA available on a sticky on this forum (look at the top of the page) and start to see your funds being allocated. Once you have applied this to each and every category relevant to your life you will see how much you are genuinely spending where and what, if anything, you have left for WANTS. 

It's imperative you are honest about wants and needs. No one can buy everything they could want, you need to make choices.

Once you have a proper working budget you need to stick to it. It sounds to me like this is your trigger point. Looking at a budget and expecting your spreadsheet to miraculously sort everything is futile. You need to actively engage and work on your finances yourself, every day for every penny. No one else can or will do that for you. More money won't magically appear just because you've overspent on a night out - a hangover won't be your only headache. 

Temptation is everywhere for everyone. Resist it now and choose wisely and carefully so in your future you still have choices as your life changes and not debt with anxiety on how to pay it back. 

I would honestly say to yourself - I choose to NOT buy this because whilst I like it I can't afford it and/or don't need it. That choice is always better than choosing to be in debt. Be present and proactive in your life. You wouldn't walk into fast moving traffic to see what happens on a whim because it would be foolish (and messy!) so don't choose to be in debt on a whim because your finances will end up messy and that's foolish. 

I hope this helps. Others will also be along and try to help but ultimately, you need to take control. Good luck! x

tempus_fugit

Ellie_BB said:

Ok, I admit it, I'm rubbish at budgeting! I am newly debt free (partly through hard work, but also partly thanks to the pandemic restrictions). Even after all this time, I still feel like I'm learning to be a DFW. I've used spreadsheets for years, but it has recently dawned on me that my 'budgeting' is more accurately described as watching myself overspend and going oops! I have revamped my spreadsheet and set up pots to try and plan better for non routine spending, but am already getting into a muddle and am really worried I'll be running up debt as soon as covid is sorted and life goes back to normal.

I have put money in my virtual pots, but this month I need less in some pots and more in others, and I don't know whether I simply take money from one pot to top up another, or let my sheet show that I'm over budget in a category. I know in theory the idea is not to spend more than I have in a pot, but if I need more than 1/12th of my annual cleaning supplies now, how do I manage that?? I feel really foolish for not having a better grip on this after all these years, but need your expert views - how do you manage budgeting?!?!

The answer to the bit in bold is, yes, you can do this, as long as there are available funds in other pots to cover it and you don't need that money for something else later in the month. I use YNAB and this is one of the accepted ways of handling overspends. However, you must make sure that the money you are moving from that fund is actually spare, so it can't come from, say, the fund to pay the electricity bill, it has to come from something flexible like, say, a coffee find or eating out fund, and accept that you will have less for coffee or eating out for the rest of the month. 

Of course, if there are no more available funds left then you either can't spend the money or, if it's something essential, show it as an overspend and deal with it in the following month. Ultimately, it's up to you though, i.e. which way is most useful for you, to take funds from another pot or to mark it as an overspend and therefore highlighting that something has to change for the future.

enthusiasticsaver

There are 2 things to consider. Budgeting or setting a limit for each category usually based on last years spend with inflation taken into account and cashflow. If you spend £2000 a year on maintaining your car but the mot and insurance are due in February and you are just starting this process then yes you will have a cashflow problem. Only for Year 1 though as hopefully you will build up a buffer.  You can borrow from other pots or change the amount you pay monthly so if you know you have lots of car expenses but very little holiday outgoings then borrow from the holiday pot. Ideally though you would overfund the pots to start with if you can afford it particularly the ones you need to access soon. 

kimwp

Hi @Ellie_BB!

I tried budgeting more stringently than I had done previously and I had varying success, but I wrote down some lessons I had learnt, which might be useful:

https://forums.moneysavingexpert.com/discussion/6165746/six-month-target/p1

For me, it works well to mentally put aside all the spends that don't change monthly (having made sure they are the lowest they can be) eg mortgage, bill direct debits, then manage the rest of the money - it just means there are smaller amounts and fewer things to think about.

For bigger spends, like car insurance or smaller bigger spends like the cleaning products it works well to put an allocated amount aside each month, (in addition to building an emergency fund) to build a little pot which you can take from in a lump and add to more slowly - though I personally find that cleaning supplies don't tend to run out at the same time, so I just include them in "groceries", buying them as they run out.

There's a lot of praise for zero based budgeting and I think it's great if you can do it - I personally find that it's easier for me to allocate an "unexpected spend" or buffer in my monthly budget - then if it's not spent at the end of the month, I can save it, roll it over to next month or have a treat.

greensalad

I use YNAB, which is a great tool for essentially Zero Based Budgeting. The idea that every pound has a job. 

Let's say you have £100 on Friday, and you get paid a week later. You know you need to buy groceries, buy a birthday present for your Mum, you've been invited out to eat and you also need to pay your gas bill. What do you do?

Well, you divide up the cash you have into jobs. Your gas bill takes priority, £60 let's say, then you go to the supermarket and buy some groceries, but you end up overspending, £25. Now you need to get your Mum a present so you buy one for £10 instead of the £15 thing because you're running low. You only have a fiver left, so you turn down the invitation to go for dinner because there isn't enough in your budget.

That is basically the concept behind ZBB. YNAB is just a tool that helps with that (and one that I will forever proselytise, because it's so good at doing what it does). If you get paid monthly you need to explore your required spends with the money in your pocket until you can reasonably expect more income. 

The most basic way to start is to record every transaction under a category, and assign budget amount to those categories BEFORE you spend. It's no good knowing you need to buy groceries, spending £25 on them, and then realising you need to buy a birthday present you hadn't budgeted for. If you know how to divvy up your cash beforehand you can make the correct decisions.

tacpot12

Ellie_BB said:

I know in theory the idea is not to spend more than I have in a pot, but if I need more than 1/12th of my annual cleaning supplies now, how do I manage that??

What you should do first (as suggested above) is to think carefully about whether your really need to buy more "cleaning supplies" that month or could it wait? Is there a realistic opportunity to by more this month, but then less next month?

If you decide that you do need to buy more cleaning supplies that you have budgeted for, the most important thing you need to do is increase your budget. 

Please don't worry about being "bad" at budgeting, it is a skill and like all skills it takes time and practice to get good at it. You'll get there. My life became much less stressful when I got the hang of it.

I don't use pots to manage anything other than annual expenses. I take out of my income the money I need for annual expenses such as car tax or house insurance. I also take out an amount for "house maintenance"; the amount for this is based on not much more than a guess about what we will spend over the next few years. I also take out an amount for "General Savings". I use the House Maintenance and General Savings pots as my Emergency fund to cover unexpected expenses. Once I have taken out the annual expenses and the contributions to my Emergency fund, what there is left in my bank account is what I can spend for the next month on food, petrol, eating out etc. I know that I spend about £400 a month on food for the family, and about £60 on petrol so I only spend money on eating out if I can see that I am going to have money left. I would don't have any pots for monthly expenditure - monthly expenditure comes directly out of my bank account. 

Drawingaline

I use ynab which works really well for me. For Xmas I bought the book which explains how zero based budgeting works with four main guidelines/rules to follow, including a 'roll with the punches' where you overspend in a category as your priorities have changed so you pull money from a lower priority category to cover it within the month. 

Even though I have used ynab for a few years, I am enjoying the book as it reinforces things I have learnt along the way and also explains everything easily. It also states that you don't need the software for zbb, and can do it on a spreadsheet or pen and paper, it is the rules that are important. The four rules feature on their website, or the book is about a tenner from @mazon and I think it is well worth a read for someone who wants to budget.

Exodi

I make breakdown of my monthly expenses (in the format of a Statement of Affairs) to work out roughly what my disposable income is. As you've highlighted, it's an estimate because you can't accurately forecast how much you will spend on shopping each week, some months have more birthdays than others, etc. From that, if I had, say an average of £700 disposable income each month, I would set up a standing order to transfer £500 and leave myself £200 for the month. Anything that isn't spent by the end of the month also goes in savings. Conversely, any 'expensive' month can then be covered by savings if needed.

A breakdown of monthly expenses is useful (trawl through your bank statements to work this out, don't just guess) as it let's you see where your moneys going and if there are places for savings to be made. Also, I highly recommend setting up a standing order when you get paid to send an amount to savings - I've recommended this to a lot of people with great success. To coin the phrase as 'money burns a hole in the pocket' of many people, it can quickly alter peoples desire to spend if they see "Current account: £450" for the month (with £500 in savings) instead of "Current account: £950".

Then get in the habit of setting a goal for your savings and never touching it - defies the purpose if £20 is being transferred every other day.

La_escocesa

Another vote for YNAB from me. Completely changed my life and the way I thought/appreciated/used/saved money. Definitely worth a go for their 34 day free trial and even if you don’t use their software you can do all of their tutorials free online.