Even before the financial issues caused by the Coronavirus – the furloughing, redundancies, temporary paycuts and so on, millions of Britons were scraping by from payday to payday. One in five of us say we have no savings to fall back on in an emergency.
Rising costs of living can make it hard get by. But good budgeting can help you through some of the leanest times.
According to the Money Advice Service, only about half of UK households keep a budget. That leaves millions of us who are making spending decisions as we go, trying to keep track of our finances in our head.
If you’re among this group, help is at hand. Try these steps for getting started with budgeting.
1. Work out your real current outgoings
Getting real about your finances starts with taking a long, hard look at your outgoings – not just the obvious bills like rent, mortgage or council tax, but the unexpected costs that can trip us up, like a boiler repair.
Money Saving Expert has a spreadsheet with over 100 categories that can help ensure you don’t forget anything. It can also be worth digging through bank statements for a year or so to understand what you’ve been spending on in the past.
2. Give all your money a job
One time-honoured approach to budgeting is the envelope system. Every time you get paid, you allocate all the cash into different envelopes for everything from food shopping to gifts for next Christmas, so every penny has a specific purpose.
And with apps like You Need A Budget, you don’t need real envelopes either: the software can help you keep track of different pots of money, while it all sits safe in your bank account until it’s needed.
3. Put away money for big, infrequent expenses
Budgeting really starts to work when you’re not just putting away money for immediate bills like this month’s rent and petrol money. You can start to plan ahead.
For instance, at some point you know the dishwasher is bound to go kaput. So why not put away a small amount each month in your envelope for household repairs? Then when the time comes, you can fix it or replace it without a major panic.
4. Cope with those unexpected costs
Sadly, emergencies can’t be guaranteed to arrive on schedule. You might only be starting to save for repairs when the worst happens. Or some big expense might come along which you never anticipated.
Luckily, the envelope system is flexible too. You can take some money out of other envelopes and pool it together to meet that expense. It may mean tightening your belt – once the envelopes are empty, they’re empty – but when the next payday comes around, you can start to recover.
5. Build up a buffer
As you gain more control over your spending, you can start to build up an emergency fund that can weather you through a serious crisis, such as losing your job.
The Money Advice Service recommends trying to build up enough cash in savings to cover three months’ of essential bills. That kind of peace of mind is priceless.