There's a lot of prep work for getting to grips with budgeting, but there are also things you can do once you've got set up that will make a big difference.
Get Ahead by Aging Your Money
Here’s another way to give yourself the headroom you need never to worry about unexpected bills – age your money. By this, I mean get to the point where you’re spending last month’s income to pay this month’s bills. I first heard about this thanks to Jesse Mecham at YNAB, who I interviewed for the podcast, but it’s really not rocket science.
Once you’re comfortable with budgeting, you need to add another line to the budget called aging your money. This is simply an amount to put aside and NOT spend, so that it’s available for future months.
Let’s just say, for easy figures that your amount of money for budgeting is £2,000. What if you instead budgeted for £1,800? In ten months, assume all goes well, you’d have £2,000 behind you; you’d be a month in hand.
Note that this is not just about building an emergency fund. This is about getting to the point where you actually budget last month’s income. So if last month’s income was lower than this month’s you budget the lower amount, and enjoy the pay rise next month maybe.
It’s a bit of a psych hack, I’ll admit, but the mental health benefits are huge, apart from anything else. You’re no longer living on the edge, but have a month in hand – imagine if it was six months in hand? How relaxed about money would you be then?! To pull this off, you need to consistently spend less than you earn. In a zero-based budget, this means intentionally budgeting to age your money.
Dealing with Non-Standard Stuff
Finally, I know that not everyone falls into neat little boxes. Some of you are paid weekly and yet have monthly bills -that’s an added complication. I think that the principles are the same, but it’s going to be a LOT easier if in some way you could get a week or two, or ideally a month ahead sooner rather than later.
Personally, I’d do whatever it takes to achieve this. Sell the crap in the loft (or your parents’ loft) that you don’t need. Sell the clothes you never wear on Deepop. Do a car boot or eBay a load of stuff. Pull some extra shifts, even take a second whole job for month or two. Yes – you’ll be knackered, but if you sock the money away it’ll be totally worth it.
By getting ahead, you can still budget monthly even though you’re paid weekly, because you’ll have the money to cope with all bills for the coming month. If you’re being paid weekly, you’ll need to top up your bills account each week by the monthly bill total divided by four and budget what’s left.
If your monthly bills are say, £1,200 – divide that by four to get £300. If your weekly pay is £500, then you’ll need to put £300 per week aside into the bills account and budget the other £200.
Failing that, work with all the providers of your regular utilities or whatever to spread the direct debits throughout the month, to make life easier. Still work towards aging your money so that you’re at least one month ahead, but this will make life a little easier in the meantime.
Sometimes I get asked about what happens if pay days are mid-month, but it really shouldn’t matter, if things are set up right. Working on a two account system is payday agnostic, as it were. Just start your month on the day you get paid and forget about the calendar system – that’s what I do.
Many of you will be on a fluctuating income. Maybe you’re paid overtime, or on shift patterns, or you’re self-employed or commission-based and the money fluctuates. For most of us, there’s a baseline level of income coming in regularly. Maybe it’s just your ordinary, basic pay with any shift uplift or a basic salary if you have no sales and hence no commissions, or the minimum number of shifts you can rely on getting each month.
My gut feeling is that there’s probably a baseline level of income coming in regularly. Maybe it’s your ordinary pay without any uplift, or if you have no sales and so no commission, or the minimum number of shifts you can usually rely on getting. If so, then you need to start by budgeting this baseline amount, and use the fluctuating extra to get ahead and age your money quickly.
Then you can begin to cut yourself some slack and budget a little more perhaps. The skills you learn while getting started will serve you well. Always be careful to budget a bit less than you’re expecting to come in – err on the side of caution, always, and don’t budget or spend money before it’s in your hands.
Irregular income or weekly pay make life a bit more challenging in a world where most bills are direct-debited monthly. You’re probably getting the message that the easiest way to deal with this is to get ahead early, even if that means a month or two or three of sacrifice. That is way better than continually living on the edge, believe me.
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