What's the best way to budget with the "piggy bank" theory?

[Terribleluck]

After all essential bills (including childcare, in year we'll get the 30hrs funding which will be a relief) we have around £2300 to "spare" each month. This might sound like a lot, but once we spend "everything we want to spend on/save for" we're only left with £200 a month for actual real emergencies, which doesn't seem enough? Does anybody know any good advice of what the actual %s for spending/savings should be? It came out to a shock to both of us, because we thought that we could still buy/spend as we wanted and have some healthy savings left.

If you want more money at the end of the month, you need to track your spending.

Then you'll know where it goes, and can make changes.

Well it really depends what you're spending it all on. £2100 is a massive amount to spend each month on luxuries. Unless that amount needs to cover food etc, id be prioritising saving most of that. I can't imagine having that much to spare each month or what you could possibly find to spend it on, every month.

I'd recommend 1-3 months of income as an emergency fund. I used the personal finance flowchart here ukpersonal.finance/flowchart/ to get my finances back on track years ago.

This might sound like a lot, but once we spend "everything we want to spend on/save for" we're only left with £200 a month for actual real emergencies

You need to review this again to decide if you've got the best price for everything and if all the things are really desirable to you. I can see how you get through that much if you spend a lot on food, holidays and leisure like days out and it includes saving for car replacement and home improvements or similar, but there must be scope to cut down in these areas?

There isn't really a rule of thumb on percentages because if you're on a low income, your essentials are likely to take up a much bigger percentage than on a higher income, plus everyone has different priorities and the amounts that people consider a 'basic essential' level for things like food, eating out, cars, holidays, clothes, beauty treatments etc etc varies enormously.

Whether that £200 pm is 'enough' would also depend on what your income protection and pensions are like. If you have secure jobs, good work pensions and sick pay arrangements, and you've already accounted for things like car replacement, you're in a lot better position than if you'd need the emergency savings for these sorts of things.

The money left aside includes holidays, birthdays, Christmas, car maintenance, eating out, home furnishings, "own money"..

But I think we're doing this the wrong way and maybe figure out how much we want to save for emergencies and do it backwards form there.

Probably so, that would be 'pay yourself first' which is a common piece of budgeting advice, ie put some money aside before you start thinking about spending on non essentials.

50/30/20 is often recommended as percentages for essentials, fun and long term/emergency savings, but might not work for very low or very high earners.

It's also obviously subjective how much is essential for things like food and what is discretionary/fun. If your idea of normal basic shopping is wandering round Waitrose filling the trolley with lots of 'that looks nice' and ending up with a bill north of £200 for a family of 4, you probably have quite a lot of luxury/fun in that amount, so obviously scope to cut down, same for things like cars.

A 5 YO medium hatchback that's economical on fuel and kept a few years is probably sufficient for most families, so if you drive a new 4x4 that costs hundreds of pounds a month in payments and uses twice as much fuel, you have to accept there's a considerable amount of 'fun spending' here. Etc etc for clothes, grooming, phones and the like.

In terms of practicalities, I posted here the other day about splitting your money into different accounts, to keep it all separate and limit spending on non essentials.

Those are our spreadsheets @BarbaraofSeville. I think ultimately both of us are aiming for the same thing. We're a family of six half the time, which is why some things are expensive whenever we do them (like eating out or holidays).

If you have £2300 "to spare" each month, how are you only able to save £200?

See if you can find deals etc.

@yourestandingonmyneck that's after we've put everything into different pots for different things. The £200 are completely unaccounted for.

I think you need to look at your budgeting again! That's a lot of spare money

[quote Onlyrainbows]@yourestandingonmyneck that's after we've put everything into different pots for different things. The £200 are completely unaccounted for.[/quote]
Well, the different pots will count as savings as well then, surely?

You need to just have a think about how you want to structure things.

I'm guessing a lot of your pots are sinking funds? A sinking fund is savings that will be used for a specific purpose (ie they will sink), for example a Christmas account would be a sinking fund - it'll build up each year until it's spent.

So you could have one of those for house repairs etc, as that would be classed as an emergency.

Other emergencies, such as inability to work etc etc should hopefully be covered by having relevant insurance in place.

A decent emergency fund is generally considered to be 6 months expenditure held in cash.

Once you've got this, you can look at saving / investing your surplus £200 as "life savings" (eg hopefully continuing to accumulate as opposed to dipping into like sinking funds).

But as others have said, first step would be to review your outgoings.

@yourestandingonmyneck exactly most of them are "sinking". Our outgoings (the basic ones anyway) are as low as they can be. It's really how we want to redistribute the money afterwards that is becoming tricky. My DH wants a "free for all" pot but I don't agree with that.

Chicken and egg
You know your essentials.

Break down what's left down to the penny.
Eg £300 a month Xmas
£3oo a month birthday
£500 holidays
£500 emergency saving
£500 long term saving
£70 children's clothes and essentials
£200 children's activities /tutors /extras

Then allocate that every month.
We have about £50 each floating around at the end of each month once these savings have been added too.

We didn't review our outgoing except for essential bills.
We spend accordingly after that.

I was reading about the three months essential outgoings savings, so I think that's probably a good aim. Although I don't quite understand if it's an "unemployment type fund" or a rolling emergency fund. We're terrible at saving but we're good at not overspending.

We're terrible at saving but we're good at not overspending

@Terribleluck Does that mean you come out even?

You need to understand where your money is going first.

If you're spending incidentally, like a coffe here and lunch out there, or a "oooh that's a good price" or whatever. Then you will spend a fortune without realising. The micro transactions add up quickly.

So, list where everything goes on "bills"
Eg mortgage, petrol, food, kids clubs, savings phones, TV, internet...

Then see what is left. Eg £1000.

Then work out where the other £800 is going.

Then fix the problem.

So, look at reducing bills, eg can you switch TV packages, stop a service (eg you hardly actually use Netflix).

Then look at "spends". How often are you buying lunch out. Can you reduce that...by making your own. Only going out twice a month. Reduce take aways to fortnightly...

@leafy before my new job yes. We'd always have money if something went wrong and we're able to pay an ikea debt before its time. We never had to use the credit cards for birthdays or Christmas BUT we haven't been on holiday and we tried to be as frugal as possible on our day to day expenses. In an ideal world we want to be able to buy new jeans or shoes without having to think too much about it. But for example, ever since we up our home, more than a few years ago, we haven't really bought any new bedding or cutlery or towels, so would like to have the freedom to spend money on that too, especially considering we "should" have enough money to do so.

The other thing to look at is the last few months of your spending to see where your money is really going. If you pay by card, you can download the transactions into a spreadsheet and split into categories.

Eg are you spending a lot more on groceries than you think you do. Look at everything in the supermarket, plus top ups. Or are you spending a lot in cash and notes just turn into change and disappear?

@001 we're actually doing it in reverse so to speak... How much are we comfortable to spend on such things.. We've always been super cheap with our expenditure (in general) but we now have this extra salary and we want to budget wisely. But as an example... Normal day out in town (pre new job) we might go to Spoons, but most likely we'd buy some sausage rolls from the Co-op and some juice. Them have lunch at home. Going out to Pizza Hut (it ordering a takeaway for all of us) was only for celebrations/special occasions.

We don't have to live that way anymore, but it's hard to find a balance

You say you're good at not overspending, do you mean you live to your means and dobt get in debt? Or do you mean you don't spend unnecessarily?

As a single parent, my monthly income is less than your monthly excess. I'm nit griping about that BTW - it just might put it into perspective. It's It's lot of money to have after your essential outgoings .

It's great that you are budgeting abd saving fir holidays, birthdays etc, but you could perhaps spend a little less on them and add more to your emergency fund/long term savings fir the next year or 2 and be in a better position ?

@Barbara we know exactly where our money goes. That's not the real issue, it's more "now that we have this extra income how do we distribute it to improve our quality of life but also bake some financial sense". A year ago my net salary was £1500, from January it will be £3600, for a few months this year it was £2200. So we're getting a lot of financial freedom that we didn't use to have. What we're trying to figure out is how to spend it wisely.

@imfree live within our means and not get in debt.