Value of Financial Budgeting
Five good reasons to budget
• To keep track of where your money is going.
• To have money available to meet bills when they come in.
• To get early warning signals of over-spending.
• To see where you are wasting money.
• To set priorities so you can spend money on things you really want.
Preparing a budget
• You need to design a budget system for yourself which is quick and simple. Budgeting is best done little and often, preferably monthly. Do it as soon as your bank or building society statement arrives. If you don’t already get one, ask the bank for a monthly statement.
• Records of your accounts can be kept in accounting books; on special 12-column analysis paper (with one column per month, so you can see your yearly budget at a glance); or, if you have a home computer, on a spreadsheet programme that will give you a running tally.
• The first year of a new budget is always hard as you start to save, but when you have built up a fund to cover bills, it will get easier.
Where did your money go?
Use the budget planner on the next page to work out how you spentyour money last year, month by month. It will show you when your, , telephone and water bills come in. It will also reveal your heavy spending months — holidays or Christmas, for example — and where you are wasting your money.
Where would you like it to go?
Now use the budget planner to plan this year’s spending in advance, month by month:
• Fill in your regular monthly payments: mortgage or rent, and other bills and expenses. Allocate quarterly or yearly bills to the months in which they fall. Remember to add an element for inflation.
• List your priorities for the rest of your expenditure. Some may be long term (such as planning your retirement) whereas others could be shorter term (saving for a new car or a holiday). You may also need to spend money immediately on new furniture or clothes, or on urgent house repairs — a leaking roof, for example, or a new boiler.
• Allocate the expenditure to the month in which you want to spend it: new summer clothes might fall in May, for example.
• Work out how much you should set aside each month to meet the bigger quarterly bills. Put together the money to cover these bills and the commitments you have already identified, and you now know how much you should be putting aside each month.
Is it working out?
Check your expenditure once a month to make sure you are keeping to your budget.
MONEY QUIZ: DO YOU NEED TO BUDGET?
|Do you consider yourself well paid?||Yes/No|
|Do you often find you have no money in your wallet or purse?||Yes/No|
|Do you often think that people in similar jobs have nicer cars, houses or clothes than you?||Yes/No|
|Do you pay interest on your bank account or credit card?||Yes/No|
|Do you often forget when the big bills are due?||Yes/No|
If you answered ‘yes’ to more than three of these questions, start budgeting now.