How to set a budget

[DailyEnergyCrisis]

I’m hoping to spend less on extras this year which I guess is mainly clothes I don’t need, fancier food than we need, things the kids don’t really need. What’s the best/easiest way to set a budget and track spend? Or do I need to go cold turkey and only buy food and essential kids clothes.

Head to YNAB - you need a budget. It's revolutionised my spending

Moneysavingexpert.com to review your budget then separate accounts for DDs, savings, essential day to day spending and personal spends.

www.moneysavingexpert.com/family/money-help/

Do you know what you currently spend, would be my first question? Go back through statements for the last 6 months and add it up.

Then, what do you want to do with that extra money you’re not spending on clothes etc?

Do you have savings? (Do you have debt?) Do you save for your DC? Is there something in particular you want or need?

It’s easier to have a positive goal (“I want to have a holiday this summer”) than it is to have a negative one (“I want to spend less”).

As a pp says, start with a review. Print off six months of bank statements and work through them, accounting for every penny into different categories. If you tend to take out cash or you have lots of expenditures that you can’t account for, that’s your first lightbulb: your need to find a way of tracking and accounting for everything.

Once you’ve done this, you’ll have a fair idea of where all your money is going. So you can start to create a working budget. First, as up all your monthly income. Then, using the categories you’ve already come up with, list all your likely expenditures. Start with the essential ones that you can’t control - rent, council tax, any standing charges / direct debits for bills, insurance etc. Then ‘discretionary but necessary’ ones where you have some control over the amount, but can’t avoid - food, other groceries, toiletries. Then everything else.

you haven’t said if you are struggling or have plenty money but just don’t want to didn’t / waste as much. If you have surplus, decide what you want to do with it and ‘pay’ that first. Set up a savings account and a direct debit into it, which goes out straight after you’ve been paid. The goal could be a holiday, a deposit, pension, whatever: the trick is to ‘spend’ that money before it gets frittered away.

Tracking spending has to be active, done on a weekly basis ideally. Sit down with a bank state ment, and account for every penny that’s been spent. You need to commit to this. YNAB definitely makes this easier, but you still have to commit the time to it.

Thanks everyone. To answer a few questions- we have less money than before as I’ve given up to work to support the DC through some health issues so we’re around 2.5k a month net down- as of July this year. We still have a good income but we have high mortgage and bills.

We save a decent amount in pensions, savings accounts for the children, the tax free ISA government thing and have saved 35k for house renovations (that won’t go as far as the work we want to do).

At the moment we’re in the red at the end of each month. If I’m honest I haven’t really changed spending habits since giving up work and I tend to order lots of stuff online- clothes for us all, treats for the children, more Christmas/birthday presents than they need.

Our mortgage and bills have increased by around £700/month with the COL issue.

I plan to work part time from September if I can find something that’s school hours so I’ll be earning again but not as much as before probably so the changes could do with being permanent really.

We’ll need to stagger the house renovations and try to save along the way to increase the fund but at the moment we’re going in the other direction.

I’ll follow the advice above about reviewing spending (though it’ll be painful!) and I’ll try to have a no spend January for a sharp change of mindset.

I think you need to prioritise before you do anything else.

When you were earning did you budget or did you wing it? They are two slightly different issues - if you budget then you never re-budgeted, and if you were winging it you need to stop!

You need to start by writing down your income and fixed outgoings and see what's left. If you are simply overspending on fancy food and clothes that's pretty easy to sort, but you need to work out if you can actually afford all the money going into pensions, savings for the kids, house renovations. There is no point saving if you are accruing debt in the process for instance.

Is your husband on the same page as you or are you trying to address this?

We’re in no debt other than the overdraft at the end of the month which gets cleared by the next salary going in (£6.5k net a month after pension and saving deductions).

Fixed monthly outgoings are roughly:
Mortgage- 2.3k
Energy and water- £450 (sure this will increase again)
Council tax- £300
Sky and phones- £150
Petrol, car insurance, house insurance- £100
Childrens clubs/swimming- £200
Exercise- £75

supermarket- generally around £150 a week so £600ish monthly

Takeaways- around £120/month

Total fixed- around £4.3K

We’ve spent a fair bit lately on private healthcare for the kids and unavoidable house maintenance which along with Christmas has landed us in the red but I’m sure my online frittering could be reduced too.

I didn’t budget when I worked as we always had enough to spend/save what we wanted between the two salaries but we’re no longer in that position (though still fortunate I do realise).

We’re in no debt other than the overdraft at the end of the month which gets cleared by the next salary going in

You need to clear that with your savings, then start from £0. Overdrafts are the worst, most insidious type of debt because they give a false sense of security and it’s hard to monitor month on month if the debt is getting worse or better.

If you won’t pay it off with the savings you have for the house, get a 0% money transfer credit card and pay off the overdraft, then treat it like a debt to be paid monthly until it is gone, and never go into your overdraft ever.

You are almost certainly overspending on that £600 per month groceries. I think you’ll be surprised and horrified if you track it properly with top-up shops etc.

Ditto the takeaways.

A no-spend month is a good idea. You really aren’t in the position to fritter stuff away if you are on one salary with such a big mortgage and plans for house renovations.

YNAB makes everything painfully clear, which is what you need, imo. You'll be able to see the direct impact of your £3.50 coffee each day, etc.

I think my grocery shop is fairly accurate- I shop at Aldi and cook from scratch. I spend about £100 a week there so have allowed £50 a week for the odd top up shop.

We have two takeaways a month- never more than £60 a time- more like £30-£40.

DH gets an annual bonus of around £60k after tax that we will use to clear overdraft (only a few hundred pounds) and add to the renovation fund.

I was more asking for advice on budgeting for the trivial extras than feeling really worried about the basics. That said, I know I can’t continue to fritter money which is why I posted.

Thank you, I’ll check it out. I think it’s those little costs that really add up. This Christmas holiday it’s been hard to keep the kids entertained with the constant rain so there’s been cinema, softplay etc and it’s all so expensive.

When I referred to fancier food in my OP I guess I was thinking of the fizz/canapé type stuff over Xmas, when having people over and for special occasions. I think I do ok with our usual weekly expenditure but I could spend less on hosting definitely.

Personally I don't like working with budgets, especially for discretionary spending, as you can end up with the "public sector disease" of spending your budget whether you need/want to or not "because it's there".

I'd prefer working with a zero base approach, i.e. start with an assumption of nil spending, then put in the essentials that you can't change, and then paying off debts and building up savings/investments, and then you're left with "unallocated" money so you know what "freedom" you have to spend. But even with that, you should only spend what's really, really needed and worth it to you, and save the remainder.

I just think that by budgeting you still spend too much. I.e. if you currently spend £100 per week on coffees and cakes when travelling or shopping, you may feel you're a success if you set a budget of £50 and manage to stick to it, but in reality, you don't need to spend anything on coffee and cake as a matter of routine/habit, so cut it right back and only do it when you really have to or want to, in which case you may find yourself down to £25 or less! Similarly with clothes, you "could" budget £100 per week, but likewise (and probably easier) you could spend zero.

If you like to go for regular days out, have a look for annual passes, which can pay for themselves in only a few visits, I think for things like the cinema, you only need to go about twice a month for it to be cheaper than paying as you go. In the summer, look for things like National Trust or English Heritage membership. You can get annual membership for the price of only a few visits, so much better value. If you like swimming, a family gym membership could be cheaper than a few visits to the local leisure centre and the facilities and opening times will likely be better.

But make sure you always take drinks and snacks with you rather than buying when you're there. Food and drink out of the house is an easy win, as it's so much more expensive than taking the same food from home, and it's usually no hardship as often a lot of money for poor quality at the end of a long queue.

Also be a bit 'strategic' with what memberships you choose. Pay for one or two, then use those as much as possible. Then cancel that and choose another one and do the same. Also look for offers, workplace 'clubs' or vouchers on cereal packets etc. Just about anything can be got for a lot less than paying the full price on the day.

You might find it useful to open a bank account with "pots" that allow you to separate the money in your account into separate stashes which you can monitor.

We use Monzo and it really helps us stay in budget for the types of spending you describe. We have a pot for "treats" which we pay into every month and once it's spent it's spent. Same with a pot for Xmas, birthdays, bills, house projects etc it makes it really easy to see what money is allocated where and when each bit is gone

@user1497207191 But in the OPs case, there isn't anyone going to take the money off her if she doesn't spend it, like would happen in the public sector.

If she allocated £100 pm to days out, and moved it to a separate account and doesn't spend it in month 1, the money just sits there until they decide what to do with it, and if they don't want to go on a day out, they can instead save up for something more expensive like a theme park in month 2 or 3.

Re kids days out I shop at Tesco and use clubcard points for cinema, English heritage etc.

I also show my kids the YNAB budget. If the "kids holiday fund" is empty they know we have to do something else that's free

I think I do need a budget to just have a maximum value for everything but I totally get that spending nothing is preferable.
Having control and exercising restraint is what I want/need from it.

Thank you for all of the advice on kids days out- really helpful. And ultimately saying no and doing free things will be important too. The children do love a muddy walk or playing games at home so we can do more of those things.

You sound like you've just been used to going online and buying whatever takes your fancy without a second thought.

I think that's the mindset you need to challenge and change.

You could start by NOT browsing online just for fun. Only go online if there is a specific thing that is really (REALLY) needed in the next week or two.

Take time to reflect before you click on "buy now". Is it really Needed or just Wanted?

Also have a pad of paper and a pen next to your device so as you purchase write down what you bought, why, and the cost. Do a tally up each month.

Ah, OK - a £60k bonus so I understand you’re not that stressed about the overdraft/big mortgage!

I will second or third YNAB in your situation. It’s all about a mindset shift not a ‘you must do this not this’ so it makes your priorities really clear to you and helps with making choices around discretionary expenditure crystal clear.

I think you’d really like it. It has a bit of a learning curve but if you’re off work to focus on family for a defined time in your life, it’s worth trying now. And the 1st of a new year is an excellent time to begin…

This is all really good advice- and yes, I’ve been in a buy what I want mindset for several years as we’ve been able to afford it but obviously things are different without two salaries. I think initially I need to go cold turkey.

Thank you- I’m definitely going to use a means of budgeting. I’m not keen to pay for it, I should probably just do myself a spreadsheet and be scrupulous about keeping it accurate.

Even the last week I’ve found I’ve stopped myself buying stuff online and making do with what we have. My daughter and I made a piñata and buster stick for her birthday party out of craft stuff/cardboard packaging and it’s actually lovely and saved me £20.

Start with no spend jan to give yourself a clean break

@DailyEnergyCrisis most YNAB users find that it saves them far more than they spend. I spent 10 minutes this morning on YNAB. I now know exactly how much money I have available after fixed costs until we next get paid in a couple of weeks time (we get our money twice per month), all our direct debits for the next two weeks are accounted for, so I don't risk spending money that should be allocated. I've set aside money proportionally for annual costs, such as our Amazon Prime, MOTs, etc. I don't even need to think about that stuff now. I can review how much we spend on groceries, so I can reset when I start to see more spending on local stores, because it means that I'm spending more than I need to.

YNAB has a 34 day free trial, so it's worth a look.