Whether you are employed by a company, work from home, or are self-employed, learning to budget plan is definitely up there when it comes to important financial habits.
My article takes a look at the importance of having a monthly budgeting plan.
What exactly is it?
Why should you have one?
And how do you get started?
What Is Budgeting?
Put simply, budgeting is a way of making sure that the money you have coming in comfortably covers everything you have going out.
It involves working out what you need to spend money on vs what you want to spend money on.
In other words, making good financial decisions – ie: making sure rent or mortgage payments are made, bills are paid, and there’s food in the fridge before splashing the cash on that sick pair of trainers.
It all sounds a bit grown up and boring, I admit, but having a budgeting plan really will be helpful in the long run and, when it’s done properly, means you’ll hopefully still have some cash left as part of your budget for the odd treat!
Why Should I Have A Monthly Budgeting Plan?
There are literally no disadvantages to having a budgeting plan – unless you’re proper lazy and you’re going to count ‘putting in some effort’.
But, even those far too idle to start writing down all their ingoings and outgoings on a piece of paper have no excuse – because there are budgeting plan apps you can download now (more on that later).
These are some of my top reasons for having a budgeting plan:
- 1. A monthly budgeting plan will help you to control your spending.
It sounds very obvious, but if you’re someone whose bank account takes an absolute battering on pay day, it could be that you’re spending beyond your means every month.
It might be that you have a rough idea of how much money you can spend on the extras each month, but without working out accurate numbers it can be really easy to lose control of your spending habits.
Having a budgeting plan means you can keep a closer eye on where your money is going, see the impact of what you might have always considered ‘small expenses’ (yes, we’re going all “boomer” here and talking about your daily Costa coffee habit), and take back financial control.
- 2. A monthly budgeting plan will help you with your financial goals
Whether it’s saving for a house deposit, a holiday, or just a rainy day, we all have financial goals we want to achieve.
Setting the goal and your ‘deadline’ is the easy bit – actually getting there, is not…
Enter: a budgeting plan.
- 3. A monthly budgeting plan can lower your stress levels
Nobody likes feeling overwhelmed when it comes to money. Unless you’re overwhelmed at how much you have – that’s probably nice.
But even then, you might not have a lot of money for long if you don’t make proper plans for it.
Creating a budgeting plan (and sticking to it!) means you’ll never spend beyond your means and you’ll be more prepared for unexpected expenses – like when the washing machine suddenly dies.
Less nasty financial surprises = less stress.
- 4. A monthly budgeting plan will help you to avoid or get out of debt
I’m stating the obvious here, but if you want to build wealth you have to stop spending it on things you can’t afford.
If you’re using a large portion of your monthly income to pay somebody back, a budgeting plan can help that feel like less of a financial hit by highlighting where you can make cutbacks, pay your debt off faster and eventually be free of it altogether.
On the flipside, a monthly budgeting plan can help you to save money so that you can pay for big purchases and not have to borrow money and get into debt in the first place.
It’s a win-win.
How To Create A Monthly Budgeting Plan
School taught us many things; algebra, the difference between arable and pastoral farming, and that there’s always some kid willing to lick a battery for a dare.
What you’re unlikely to have learned however, and would have been undoubtedly more helpful, is how to budget your money.
So let’s break it down.
1. Organisation is key
Rushing your monthly budgeting plan is just going to end with you making mistakes, so take your time and give it your full attention.
Get all your important paperwork together, such as:
- The last few month’s worth of bank statements
- Credit card bills
- Info on any benefits you might receive or any additional income
- Info on any savings or pensions
- Copies of your household bills
2. Work out your income
Next you need to work out exactly how much money you have coming in each month.
When it comes to your regular income from employment, you need to write down the figure AFTER tax and pension contributions have been deducted. All you’re interested in is what you have left to spend.
Remember that as well as wages you might receive benefits such as Child Tax Credit or Universal Credit – so include that too when you’re working out your income.
If your monthly income isn’t always the same – perhaps you sometimes do overtime, are self-employed or work freelance – work out what you earned over the last 3 months to establish an average and use that as your starting point.
3. Work out your essential spending
Now it’s time to work out your essential monthly outgoings.
‘Essential’ might be different for everyone, but it’s basically all the stuff that you have to pay each month.
I’m talking mortgage or rent payments, council tax, utilities, food, childcare, petrol and car costs, travel etc.
If it’s essential in keeping the roof over your head, the bailiffs from the door, getting you to work and generally keeping you healthy and alive – it’s essential.
Write down how much you spend on each of these things each month so you can see where your money is going, and deduct the total from your monthly income.
By seeing it all written down in black and white, you might see where some cuts can be made – even with these essentials.
For example, you might be able to save money on your utilities by setting up your payments as Direct Debits if they’re not already, shopping around for cheaper companies, going to a different supermarket, or buying a travel card.
4. Look at your disposable income
Your disposable income is what’s left, and it’s what you’re spending on things you could do without.
You’ll probably find that some of those things are more important to you than others, so your next job is to work out what.
That all inclusive Sky TV subscription and gym membership might be more important to you than your weekly takeaway or monthly night out, for example, so you might have to prioritise where your disposable income is going.
Especially if it turns out you’re regularly spending more than you earn.
Within your monthly budgeting plan it’s a good idea to see where you can cut back in order to have some savings for emergencies, Christmases and birthdays etc.
It could be as simple as going from a weekly takeaway to a fortnightly one, arranging to go just for drinks each month rather than a meal, or cancelling one of your TV subscription services.
Or you might need to do a complete financial overhaul and start from scratch in order to make sure you have something left over each month…
5. Create a budget you’ll be able to stick to
Now that you’ve got an accurate picture right in front of you of what you’re spending every month you can draw up a monthly budgeting plan that you can realistically stick to.
Instead of stressing about how much you want to spend each month, it’s much easier to work out what you want to save in order to create your monthly budgeting plan.
Let’s say for example, you want to save £50 a month to start with.
If you can spend £15 less on clothes each month, save another £15 a month by only swinging by Starbucks once a week on the way to work instead of twice, and make a takeaway a monthly treat instead of a weekly one – there’s your £50.
Perhaps now you’re seeing how much it’s costing you each month you’re going to try and cut down on the booze and fags – or quit altogether. There’s another fifty quid.
Switch from gold to silver membership at the gym (let’s face it, you’re never going to go on weekends), and that’s another 20.
I’ve already mentioned ways you might be able to reduce the cost of your utility bills and monthly food shop…
Savings can be made in most areas of your life, and it’s much easier to see where once it’s all written down – and it can get quite addictive!
Especially when you see there’s still money in your account when you next get paid!
Monthly Budgeting Plan Apps
Yes, they exist – and most of them are free.
Music to your ears now that you’re on a budget. So if Excel spreadsheets or good old pen and paper aren’t for you, I’ve taken a quick look at some of the best budgeting plan apps available.
First of all – it’s free.
Second of all, you can connect all of your accounts, whoever they’re with, meaning you can manage all of your financial stuff in one place; savings, bank accounts, pension and investments – you name it.
Lumio lets you track your day to day spending as well as your monthly outgoings AND it’s super secure.
The app has bank-grade encryption and is registered with the ICO Data Protection Register and the Financial Conduct Authority Register.
Cleo is another free budgeting app – and one that tries really hard to be down with the kids.
For the most part, it’s working – it has tons of positive reviews, a lot of which mention its simple, fun and interactive design.
Even with all of the graphics, icons and overall ‘coolness’, it’s a bloomin good app that keeps things really simple and helps you to budget, keep track of your spending and even gives you money-saving tips.
Nothing is ever stored, so your data stays secure, and you can even stay in read-only mode.
There’s a chance you might have heard of this one as it was rated Best Personal Finance App by British Bank Awards in 2017, 2018, 2020 and 2021.
Even more impressive is that this app is also free, and has four parts to it – accounts, bills, analytics and budgets.
Like Lumio Smart Money you can connect all of your accounts and view them at the same time, so you don’t have to log into multiple apps to keep track of your finances.
Money Dashboard supports more than 90 accounts and is connected to every major bank in the UK and its users all rave about how quick and easy it is to use.
So, there you have it – monthly budgeting plans; a great way to stay in control of your finances and save money, so start one today.
And don’t forget to buy me a beer when you’ve saved your first million.