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CREATE A BUDGET (FROM SCRATCH!)… AND STICK TO IT!
Last week we looked at the things you need to do in preparation for creating a budget… and if you followed that advice to the letter, you’ll still have 3 weeks of spending diary to capture – so why not bookmark this post and come back to it?
If you think you have enough information – maybe you don’t spend cash, so were able to track all your spends last month from your bank statements, great – let’s get started putting the budget together.
I’m a pen and paper girl – I work with spreadsheets, so I’m well versed in them too, but I just like seeing things written down. So I create both a computerised version and a written version of my budget (overkill maybe, but it works for me). Decide what better suits you.
I like to budget for each month separately for accuracy and for visibility. You can put a whole year into your budget spreadsheet if you want – again you want to find what works for you so you’ll stick to it. Personally I create a new tab for each month.
Keep it simple
A basic budget doesn’t need to be overcomplicated, you don’t need lots of formulas and columns or you’ll end up with information overload. Keep it simple to begin with. You can tweak it and add elements as you use it and find out what suits your life and finances.
Income minus Fixed Expenses
We know how much money you have coming in, and we have a list of the DDs and SOs.
Subtract the total expenses from your income. This will leave you with your disposable income.
Calculate your Variable Spends
This is where your spending diary comes in useful. Categorise your spending and add it up.
Personally I have 3 categories: Shopping, Fuel and Social.
You can decide how many and what categories are applicable to your budget and what goes where.
For me, ‘Shopping’ includes weekly food shops, top up shops, cleaning products, dog food, baby food and nappies. It doesn’t include lunch out, takeaways, coffee etc – that for me comes under social.
When we first made our budget, we were on average spending £70 a week on shopping and £50 on fuel, so I left the budget with those figures as is. We were spending a ridiculous amount on what we categorise as ‘social’ though, so I set that to £50 as well in order to try and rein it in a bit.
I work out how many weeks are in the current months payday cycle (some months it’s 4 weeks and some it’s 5) and add in my variable spends based on that.
So say we are in a 5 week month, my variable spends would be as follows:
Fuel £50 a week x 5 = £250
Social £50 a week x 5 = £250
Shopping £70 a week x 5 = £350
Total Variable: £850
In the example figures I’ve used above, we’re theoretically left £150 overdrawn. This means we are spending more than we are earning. I’ll look at ways we can improve this in my next blog post.
If we were left with a positive figure, you can then look at splitting your surplus over your sinking funds and/or transferring money to your savings.
Budgeting for Sinking Funds
You should have calculated your yearly spends on your specific sinking fund categories, so the next step is simply to break this down into a monthly amount.
For simplicity, take these figures and divide by 12 to get a monthly figure, this is the amount you want to transfer into another account to keep this money separate to your monthly spends.
You don’t need separate accounts for each pot, you can record the split on your spreadsheet. You just need to keep it separate to the rest of your money. Obviously whether or not you hit your sinking fund goal in time for when the event happens depends on when you start it and when it occurs, but in it’s simplest sense it’s a pot of money set aside so you won’t be scrambling around for money or maxing out credit cards – it’s already taken care of (at least it will be partly)
If there’s money left over after sinking funds, brilliant! You already manage your money well.
Transfer it to your savings, make an extra debt payment, treat yourself – it’s your money afterall – you decide how it’s best spent.
Disclaimer: I’ve said before, but I’ll reiterate – I’m not an expert, I’m sharing what works for me in the hopes that others will find it useful. If you have financial worries, please consult the advice of a professional.