6 Steps to Starting a budget
There are various methods of budgeting, depending on your incoming and outgoings, by definition a budget is “an estimate of income and expenditure for a set period of time.” Two simple examples are the 50/30/20 or Grandmother’s favourite “save a little, spend a little, keep a little”. But before we go into ‘types of budget’ let’s get some ground work done on how to start.
- Take the conscious decision to start a budget. ✓
2. List & categorise your income. If it’s just your salary then obviously use your net salary, your ‘take home’ pay after tax.
If you have dividends, rent from a car parking space or property, a secondary income from another part time job, add everything into your income too.
3. List & categorise your expenditures. This is where it can get more difficult; I spent £20 in Bruno’s and then £10 in Al-Medina’s are expenditures that must be accounted for, every pound should be, but to have them in categories of their own is too detailed.
Break up your expenditure into simple categories in order of priority. Savings, Essentials: Rent, Bills, food, travel (car loan, insurance, Petrol), then your leisure budget is where you stick all the spending on beer, socialising, dining and all the other fun stuff. Download an App called Revolut which gives you a debit card and account, when you use it it tracks all incoming and outgoings for you (image on left). Alternatively use your online banking, this will really help.
Remember this is not about saying you cannot enjoy your money, but it is about doing it in a manner that gives you freedom to know what you can enjoy within your means.
4. Set up a budget that is realistic. You have to be honest with yourself and budget within your means. Part of budgeting is seeing where you’re spending too much and then cutting back in that area. The point of all of this is to keep your expenditure less than you income.
You can now start to apply your type of budget. The 50/30/20 rule we mentioned earlier is quite a popular method; 50 percent of your take-home pay toward essentials, 30 percent toward leisure and 20 percent into savings.
If you find that your rent and bills come to a higher amount then you can adjust the budget 70/15/15; 70 percent of your take-home pay toward essentials, 15 percent toward leisure and 15 percent into savings. The point is to decide what works for you and your circumstances.
5. Stick to the plan. Once you’ve decided your budget, it is essential to stick to it. This can take some discipline and getting used to, however there are ways to make it easier. Transfer your essentials via direct debit or standing order so they’re paid off before you can spend the money.
6. Pay yourself first. This is perhaps one of the most important parts of budgeting because it goes hand in hand with saving. The first thing you do is pay your Saving %, whatever you decided that amount to be, into your Savings account. Before anything else, pay yourself first.
You can get savings accounts in Gibraltar that are easier to transfer in and out of, if you’re not disciplined enough then get a building society account like Leeds Building Society or the Post Office. It’s easy to transfer in to but more hassle to withdraw, meaning you’ll be less likely to take the funds out for things that are not important.