In this new series, 20-Something Money, I’ll be covering the steps you need to take to sort your life out. First – how to set a budget!
Words: Megan Carthy, Image: Tom Humphreys
Far too frequently I read “money saving” blogs resorting to advising against the daily coffee they assume we drink. These ‘plans’ are useless for real-life budgeting so, I’m here with no-nonsense money advice for recent graduates and general 20-something year olds.
My new, weekly mini-series in money management will help you take control of your finances. This first post will go through how to set a budget, the second will provide useful tips for sticking to it and the third will cover creating an effective savings plan.
So, if you want to know how to set your budget then read on!
Use A Calendar
By marking down your incoming and outgoing payments throughout the month you’ll be able to see at a glance the money that is leaving your account each month. On mine, I mark incoming wages in green, monthly bills in pink and one off, large payments in blue.
It’s pretty important that you use a calendar for this; you could use a diary but a calendar will be stuck on your wall in plain sight. If you don’t have a calendar, a ruler, pen and 6 pieces of plain paper are all you need to make one yourself.
Work Out Monthly Outgoings
Once you’ve put together your calendar, you can add up your total outgoings. This includes rent, phone bills, gym memberships, Netflix… anything that is a continual monthly payment. Once you’ve done this you’ll be able to see how much money you’re actually left with per month and have at your disposal. This is the number you will budget from, not your total wages!
To take this one step further, you can get into the habit of writing down every purchase you make. Though it might seem excessive, it will make you truly aware of where your money is going.
Cut the Crap
I’ll be blunt here – depending on your circumstances you may well have to cut out some luxuries. If your monthly outgoings are made up of absolute essentials then proceed to the next step. If you’re paying for Netflix, Spotify, X Box Live etc. you’re going need to ask yourself if you can actually afford it. If not, kiss it goodbye because right now we’re sorting your life out. More on this next week!
Set a Target
Now that we know exactly how much money you’re working with we can establish whether you have wiggle room to make some savings. We’ll cover how to maximise a savings plan in a few weeks time but now you can set yourself a target to save each month. Say you want to save £250 a month, you need to now take this out of your wages too, along with your monthly outgoings. Treat it as an added expense and you’re less likely to overspend – putting solid boundaries in place gives you something concrete to stick to.
If you are currently overdrawn it is essential to set aside as much money as possible to pay it off. No one wants a overdraft and, if you have a student or graduate account you’ll need to keep an eye out for fee changes. Try living on as little as possible till you’re in the black, when you can relax again. (Trust me, it’ll be worth it)
Note that your targets need to be realistic. Forcing yourself to try and fail is only going to throw you off the wagon. Even if it comes down to just putting £20 a month away (or nothing!) being realistic is better than being overly optimistic.
Track Your Progress
Once you’ve started on your merry way, it’s important to track your progress. Being able to see the difference your saving is making is hugely motivational and keeps you going. Every month (or week) jot down your balance, out goings or the amount you have saved and see how much you can improve on from figure to figure. Can you imagine anything more satisfying than seeing a £1.5k student overdraft slowly climb into positive figures?
No one said this was going to be easy, but nothing worth doing ever is. Getting into good habits now will make life so much easier a year down the line. Come back next Wednesday for help with sticking to your newly established budget!
*this series is designed for those on an income with reasonably low financial commitments. If you are in large amounts of debt please get in touch with the Citizens Advice Bureau.