Now we have some money in a spending account ready to budget. We have the peace of mind to know that all the regular bills and debt repayments, plus our sinking funds and long and short-term savings are dealt with, so now we can put our minds to managing the relatively few categories of spending that we use day-to-day.
Right at the beginning of this blog series, I said that budgeting was about looking forward and telling your money where to go? Now is when you do that. You now need to decide how much you’re going to spend in the coming month, and you should budget to zero, which simply means you assign a job for every single pound in your spending account. Make sure you end up with zero at the end, so everything has been spent ahead of time; everything has been planned.
The idea behind this is to keep things tight, and not too woolly. So, let’s say you have £1,000 in your spending account just after getting paid. How much of that are you going to spend on food? Maybe your weekly shop is usually £125 – that’s £500 accounted for, right there.
You fill the car up with fuel every other week at a cost of £50 – that’s about £100 if we’re working on a four-week month. Oh, but hang on – there’s a trip you need to take home for a family weekend to celebrate your parents’ big anniversary – that’ll add a bit more to the fuel bill. So, let’s make it £125.
Then there’s the wedding you’re going to – you need to budget for drinks at the bar and a cab home. You get the idea. For everything you’re going to spend money on in the coming month, put the figure down.
There’s a very good chance now that you might need to make some compromises. Maybe that wedding and the weekend back home mean that something else has to give. Perhaps you might need to take your food bill down a bit in order to make it all add up?
The technical term for this is jiggery-pokery. You need to bend stuff about a bit and make it fit. Find compromises – you might not like them, but if you can get this right, you’ll end the month in a positive position rather than maybe dipping into overdraft or putting stuff onto a credit card. For that reason alone, this is worth getting right.
You should end up with a few categories of expenditure with a figure next to each – you now have a plan. Food – so many pounds. Fuel – so many pounds. Entertainment, takeaway – so many pounds. Or whatever – they’re your categories and your amounts, but it should use up every pound in your spending account by the end of the month.
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