Piggy banking is a popular budgeting technique that entails setting up multiple funds to pay for expected and unexpected costs. / © Pexels
On paper, making a budget for yourself or your household seems simple enough. But keeping to it is a whole other problem.
The boiler breaks down. Or a birthday has come up that – despite being on the same day every year – you only remember a few days in advance. Or a friend invites you on a last-minute trip.
Suddenly, your well-laid plans are in ruins. Your budget is bust and your wallet quickly drained. You start to question whether it’s even worth having a budget at all – but don’t give up hope just yet. With a few simple tips you can boost your budgeting skills in order to cope with unexpected expenses.
DO make a budget in the first place. If you’re to have any chance of living within your means, it’s important to understand A) what your income is and B) how much you’re spending each month. If your total expenses exceed your incoming revenue, then, Houston, we have a problem.
DO experiment with different ways of budgeting. There’s a ton of apps that can help, so no need to go down the route of the dreaded spreadsheet (unless you’re a fan of that, of course!). Alternatively, there’s nothing wrong with grabbing a pen and paper and worked out your income and expenses the old-fashioned way.
DON’T wish away your over-spending habit. If you are splashing the cash too frequently, you can all too easily spiral into debt. Store credit, attractive credit card offers, and low-interest loans can serve a purpose – but only if you know you can afford to pay them back.
DO think beyond the obvious when working out regular expenses. Recurring costs such as bills and rent or mortgage payments should absolutely be factored in. But so too should expenses which may not feel recurring, such as your daily coffee habit, or monthly payday shopping spree for a new item of clothing or gadget.
DO remember that the aim is to live within your means, not punish yourself or drive spending down to a bare minimum. While living a thrifty life may appeal in the abstract, sticking to an extreme budget in the long run is likely to prove unsustainable. Plan in some redundancy to your budget to allow for the odd indulgence.
DON’T get too dispirited if you’ve blown your budget. A monthly budget is just that – something to help you plan your spending over the next four-and-a-bit-weeks. Make use of the built-in refresh it allows and, if at first you don’t succeed, try, and try again.
DO think of ways to cut down on unnecessary spending. When was the last time you switched your insurance or internet provider, for instance? If it’s been over a year or two since you last looked at deals, it’s time to do some research and find a cheaper contract. If you call your provider with this information in hand, and threaten to move on, they may even offer you a more attractive package.
DO consider piggy banking. This popular budgeting technique entails setting up multiple funds to pay for expected and unexpected costs. Many finance apps allow piggy banks to be set up quickly. If you’re not an app user, you can hold multiple accounts with traditional banks. A good idea is to have one current account for day-to-day spending and another one for bills, while using separate savings accounts for holidays, long-term savings, an emergency fund, and planned big purchases.
DO pay regularly into your piggy bank. If you have a rough idea of how your summer holiday will cost, pay a little bit towards it every month. Then come the holidays, there’s no sweat and you can relax and enjoy yourself.
DON’T forget about longer-term goals. Whether that’s saving up for a property of your own or planning for retirement, setting some money aside every month can help in the long run. Realistically, however, some months this will be harder than others. Over the festive period, for instance, you may want to cut down on the amount you’re putting away.
DO think outside the box. If you meet a savings goal you may wish to reward yourself with a treat or help others with a charitable donation. An alternative is to pledge money to an ‘anti-charity’ if you fail to meet a goal – something the stickK platform lets you do. An ‘anti-charity’ is an organisation whose goals you don’t agree with. This option is not one for everyone, but do get creative and think about what will motivate you to reach your goal.
If you’re anything like me, you’ll find that budgeting is more an art than a science. Try as I might to stick to the above principles, I don’t always succeed. But a budget doesn’t have to be perfect in order to be good enough. Be easy on yourself and you will get there, one cent at a time.