Budgeting is a skill, and like all skills it gets easier with time and practice. And as you get better you’ll be able to do more of it as second nature, and take a bit less time to actually keep an eye on things.
For example, I almost never set a budget now. I use the two account system, but I’ve aged my money so that I am about four months ahead at any given time, give or take. I also have cash on hand and investments I can draw from if absolutely necessary, so I’m relatively financially secure.
But I know what’s coming in, and I pay myself first by setting savings and investments to go out of my bills account so they’re done first, and I know then what I have to spend for the rest of the month.
When I get paid each month I move the money around and the rest looks after itself. More often than not there’s money left at the end of the month and my money ages a little more, or I chuck some in my ISA or whatever.
But I got here by being much more careful in the early stages. We’ve been a single income family for pretty much twenty years, and while I earn fairly well now, I’m a long way from being a millionaire. All I’ve done is apply these simple rules – and here’s the magic word – consistently.
No Olympian fell out of bed and onto the gold medal podium. Sir Steve Redgrave apparently attributed the fact that he was the best rower in the world to training on Christmas Day. I’ve no idea if that’s true or not, but the principle is that for most ordinary people, becoming financially secure doesn’t happen by winning the lottery or inheriting from a great aunt, but by consistently spending less than they earn and putting a bit aside.
In an upcoming blog series I’m going to get into investing and pensions and all that good stuff to put your money to work in the best way, but you’ll never have any money to put aside unless you can budget effectively.
Fortunately, budgeting has never been easier, thanks to the plethora of tools available now. I’ve mentioned MoneyDashboard and Yolt. YNAB, or You Need A Budget, is another one. Most of us have a phone with us at all times; use it to your advantage.
Notice that I haven’t gone into how much you should put aside or how much you should budget for each category, or whatever. Dave Ramsey has his four walls approach, that you should budget for Food, Utilities, Shelter and Transportation first, and then everything else.
The six buckets rule says 55% of your budget should be essentials, 10% each on Savings, Play, Education (less relevant in the UK, perhaps) and Investing, and then 5% on giving. I think you can work this stuff out for yourself.
How much should you pay for bills? As little as possible, while still getting reliable supply and decent service. How much should you save or invest for your future? As much as possible, after your current daily needs are met and an emergency fund is put aside.
Don’t get hung up on details like percentages into what or what order to do things. Just follow the 12 steps I’ve talked about here and keep doing so until you don’t have to.
Leave a Reply