How to Plan a Personal Budget
Let’s talk about budgeting. You may think that it’s boring but sometimes in life it’s a necessity. If you have a massive credit card bill or you want to save for a house deposit or you want to go to the Caribbean and drink Pina Coladas all week, you need a budget.
Follow these easy 4-steps to make a plan…
1. Calculate your monthly saving goal (this depends on what you are saving for).
2. Write down all your necessary ‘have to pay’ monthly expenses; rent, mortgage, home bills, mobile phone, travel to and from work, … Anything that comes out of your bank account on a monthly basis.
3. Take your salary after tax and minus the saving goal and monthly expenses. This will leave you with an amount of cash that you can spend any way you want.
4. Take that amount and divide by 31 to get a daily spending budget.
Example please!
Say you earn £2,500 a month after tax, you want to save £500 a month and your monthly expenses add-up to £1,000.
Once you take away the £500 saving goal and the £1,000 monthly expenses, you are left with £1,000 to spend how you want. Divide this by 31 and you have a £32 daily spending budget.
Why use a daily budget?
Having a daily budget is far more effective than having a monthly budget because we don’t naturally consider what we spend over longer time periods (I mean, do you even remember what you did yesterday?!). Having a daily budget is like setting a challenge; if one day you go over the budget – because you have gone out for a meal or have bought some clothes – you know that the next day or days you need to rein in and spend less to get back inline with your daily spend.
What if your daily budget is too low?
If your calculated daily budget is too low and you know you can’t live off it – say you only have £5 or £10 a day to spend, there are a couple of things you can do. First go back and look at your monthly expenses to see if there is anything you can get rid of or reduce. For example, subscriptions like Netflix or magazines. Once you are done, if your daily budget is still too low then you will need to reduce your monthly saving goal.
There you have it, a 4-step plan to creating a daily budget. I hope you find it useful! If you have any more questions on saving or budgeting you can comment below or Ask MOXI.
