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Monday 16th May 2022
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We’re all trying to set a little extra cash aside, whether we’re saving up for a big one-off expense, buying a home or building up a retirement pot. No matter how much or how little you’ve got coming in, the same key principle applies. If you want to grab the reins of your runaway finances, you’ve got to learn how to set a budget. Here’s a quick guide.
Learning how to budget isn’t nearly as tough as it sounds. It all starts with taking a close look at your regular earnings, and what you’re doing with them. There are 2 basic mistakes to avoid right from the start, though. The first is not understanding your costs, meaning you haven’t properly divided your spending up into things you can control and things you can’t. The second is forgetting to factor some regular saving into your budget.
Let’s start by looking at your costs. The main thing here is to draw a clear line between your essential spending and everything else. Go through your receipts and bank statements and add up everything you’re spending each month on necessities like rent, mortgage repayments, Council Tax and food. These are payments you really can’t afford to skip (although you should definitely check out our guide to Council Tax Debt to make sure you’re not being overcharged). Once those absolute essentials are taken care of, whatever’s left of your monthly income is “disposable”. With that information under your belt, you’re ready to start working out a budget.
The key to budgeting is setting up a plan you can stuck with month on month. One of the best and simplest systems is the “50/30/20” rule, which we’ve talked about in a few of our guides. See our article on fixed income saving strategies for full details, but the short version is that you rank your regular costs as Needs (50% of your income goes toward these), Wants (30%) and savings (20%). By setting yourself a simple budget like this, you’ll quickly get used to the idea of saving consistently. It’s a great financial habit to build whatever your income, and it’s worth its weight in gold if you’re saving toward a specific goal.
Let’s say you’ve got £600 of disposable income each month and want to save. You’ve already taken the hardest step by working out how much money you’re playing with. Setting aside £200 of that on a regular basis will still leave you with £100 a week of “fun funds” to splash on non-essentials. After a year, you’ll have £2,400 stashed away in your savings. Congratulations!
Once you’re comfortable working with a budget, you can start tweaking it to get even more organised. For instance, you could break down your spending even more. For example, setting limits on things like eating out, trips to the cinema and other entertainment costs could leave you with even more spare cash at the end of the month. Lump the extra in with your savings and you’ll hit your goals even faster. Doing this can also help you make up for any months when you weren’t able to save as much as you wanted. Upping your month-by-month saving by even a little can help replace the missed amount over time, which is a lot easier than trying to do it all at once.
There’s a pretty impressive range of mobile apps designed to help you save. We often talk about how important it is to make saving a habit, but some of this software’s designed to make the whole process completely automatic. For instance, apps like Monzo, Plum, Moneybox and even NatWest have a feature called “round-up saving” which actually lets you save cash even while you’re spending it. Basically, every time you pay for something, the app will round up the price to the nearest pound and slot the change into a savings account. You’ll never notice the difference while you’re actually shopping, and your savings will quietly mount up in the background. This can be a real boost to your finances over time, particularly if you’re saving toward something specific like a holiday.
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The cost of everyday groceries might be rising, but a few smart choices can still keep the costs down. A survey from Which? in January 2022 checked out a basket of 23 basic essentials, both big brands and store-owned, and compared the overall cost across a range of supermarkets. Overall, Lidl worked out the best at £24.78. Up at the other end of the scale, though, we find Waitrose, where that same basket of groceries would run you £33.94. Assuming that the supermarkets all keep their prices in the same proportions, you could save up to £476.32 a year just by switching from the most expensive shop to the least.
Saving cash isn’t a sprint. It’s a marathon where the key to victory is setting a pace you can keep up consistently. It’s about making small changes that mount up over time, rather than relying on occasional one-off windfalls to bulk up your savings. Just bringing in coffee from your kitchen to work instead of blowing £3 a day in a cafe each day could save you £60 or more a month. It takes virtually no effort to do, but has a real impact over a year. For more simple, everyday changes you can make to save real cash, see our guide, “How to Save Money on Day-to-Day Expenses”.
We’ve been living in an age when more and more businesses are trying to hook us into subscription services. From the music we listen to and the films we watch right up to food delivery services, we’re stacking subscriptions on top of subscriptions with no end in sight. How much actual value are we getting, though? Those rolling monthly payments keep on draining cash out of our bank accounts whether we’re using them or not, and ditching even one of them could easily save you over £100 a year. If you find you can’t live without it, you can always sign back up whenever you want to. In the meantime, you’ll still have save some money.
If you’re struggling with your finances, there’s a range of benefits that you might not even realise you qualify for. Depending on your situation, you might be able to claim some help from the government. The first step is to check out the benefits calculator on the gov.uk website. If you’re eligible for anything, you should be able to find out there.
Keep checking back here for more money tips and updates. We’re experts at saving you cash and we’re always here to help. That’s the reason why you’re better off with RIFT.
Find out what your saving status is against the UK average and get a personalised saving plan.
Download our free budget planner to help you make use of the 50/30/20 rule.
Common techniques for saving money over 5 years and products that could help.
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