Budgeting for dummies

[40andprettybored]

What advice would you give someone who has never ever budgeted or saved money in their life who needs to save £300 a month from now. They are incredibly careless with money and have never budgeted before.

Thanks!

Well you can budget all you like….but if you don’t earn enough to save 300 quid a month it isn’t going to happen

Plum is a good APP to have.
It takes the £300 out of your account each month and also rounds up your spends so a bit extra.
I don’t even miss it now.
I expect there’s loads of savings APPs that will do similar.

Also, just curious, how have you never budgeted or saved in your life? How have you functioned financially?

Tell them to look at last 3 months bank statements.
Assess their income. Assess expenditure. Decide what is essential and what can be cut completely from regular direct debits.
Decide on an affordable abd hopefully realistic budget for food etc.
Recommend money making/ saving tips if necessary.

Tell them to monitor their spending throughout month as well to ensure they are sticking to it.

And get them to try and lower essential bills if possible by shopping round or bartering.
They should post figures online to see if they are paying excessively. For instance quite often people are paying crazy amounts for internet or insurance.

If it’s a non-negotiable NEED to save £300 a month I’d tell them to put that in a savings account on payday, and live off the rest of their income. If there isn’t enough left to pay the essential bills, then they need to earn more money or rethink the requirement for £300 a month.

What’s the situation?

Pay yourself first.

Assuming you can actually save £300 and you haven't previously due to overspending, then when you get paid, immediately put £300 into a separate account.

Then, make sure you have enough set aside to cover all bills, food, annual contributions etc and then work out what you will have left and that's what you have left to play with.

I would recommend looking through your last three month bank statements to see where your money is going and identifying any areas of overspend. Once you are conscious of where you are losing money, you are more likely to stop yourself in the future.

Ask yourself- do I need it? Or do I want it? If it's a want, sit on it for a week to see if it converts to a need. If it doesn't, then budget to save for it at a later stage.

Got your/their bank statement.
Write down everything you/they MUST pay each month - gas, elec, rent, council tax, mobile, loans etc and inc. estimate for monthly groceries.

Write down everything you MUST pay each year (e.g car tax & insurance) and divide by 12.

Add these amounts together and subtract from take home pay.

If the amount left is greater than £300, whack it in a second pot by standing order on payday. Don't touch it. Don't not look at it. Don't even think about it except for the purpose you created the pot.

Anything left is yours to fritter - personally I move £350 into a third pot & that's my guilt free spending money. Including non essentials like our netflix & a collagen subscription.

I have a fourth pot with a monthly contribution for the annual insurances etc. so it's there when it's needed.

Any extra goes into my savings.
I've saved about 1000 this year being more mindful about my spending.

There's apps like plum but I like Monzo pots.
Referral link, if it helps?

download the MSE budget planner to see where their money goes. You enter all income and expenditure onto it

Thank you all. I earn enough I think to save it I've just never saved and always spent what I earned. I've never been good with money - very careless and I have been looked after by my parents when things have got tough.

I pay rent and bills every month and then just spend what I like. By pay day every month I'm completely out. I have no credit cards. I know it's not a thing to be proud of and I'm really not. I would like to change my spending ways.

That's a good position to be in.
Have a look at how much your spending in different categories now and have a think what is more sensible then keep note through the month so you stick to it.

Make sure you paying into your pension as well

Thank you - I think I spend most of my money on food, transport and luxuries like make up, skin care & new clothes.

Yes I pay into pension.

Track everything for several months. I use a simple spreadsheet template, you could use a book or an notes app, whatever works for you. The key is that every time money is spent, you make a note of it.

Then you can start to fit spending into categories, and can start to anticipate what your future spending will be.
Things will always come up unexpectedly, or because you forgot about them. I pay for some things annually, so tracking for a few months won't reveal those annual costs.

Use two bank accounts. One is your main bills account... wages go in there and your direct debits come out. One is your everyday spending account, where you transfer over your food budget, your clothing budget. You could do that monthly, or weekly. You spend from the from everyday spending account, and when the money is gone... it's gone. You could divide that account up into pots, naming them food, clothing etc. Monzo has pots, Starling has spaces. Your bank will call them different things but they are just a place holder for money which can be quickly moved to spending part of the account.

You may find it helpful to read books, listen to podcasts, about personal finance.
Meaningful Money episode on budgeting: meaningfulmoney.tv/2023/05/24/finance-os-budgeting/

What are you saving for? Give it a purpose. Initially that may be an emergency fund, a pot of money which you can use on unexpected events rather than taking out debt. Be intentional with your money. When you spend money, think about why you are buying, what is it for.