How to budget can be overwhelming and confusing, but it doesn’t have to be.
Budgeting is a bit like eggs. There are so many ways of doing it and we all like it in a different way: some like it old school pen and paper (fried egg), some very posh and fully automated (poached), some a bit of a mix (scrambled).
Personally, I am a fried egg kinda girl, but I have a mixed approach to budgeting. So that’s where the analogies stop and we focus on budget, because I am also getting a bit hungry.
How to budget
This post will cover how to budget easily, in only three steps and for only 10 minutes a week.
Step 1 – Create the budget
First of all, I budget monthly, because I get paid on the last Thursday of each month. Most of my fixed expenses come out of my bank account on the 1st of the following month, so it makes sense for me to budget this way.
I loosely follow a zero-based budgeting method, which in very simple terms means that every pound is allocated against some item in the budget.
Depending on your situation and payday, you might want to budget weekly.
I did so during my first job, when I was paid weekly and I only had one big fixed expense (rent including bills) going out monthly. The rest of my expenses were weekly so it made sense to start with a fresh budget every Saturday.
Why not Monday?
Well, my biggest expenses used to be over the weekend.
By Sunday night I knew exactly how much I had left and adjusted my lifestyle accordingly where possible. That meant taking the bus instead of the tube or by taking lunch to work. If I started on Monday, I would have spent more during the week and overspent over the weekend – A BIG NO NO.
I was basically working with my lifestyle instead of against it. At the time I was happy to splurge a little now and then, given I was new in the city.
How do you create a budget?
I made my own very simple budget tracker in google sheets. However, if setting up your own is not for you, there are plenty free templates online for excel, google sheets or printables.
I write down all my expenses.
First, the fixed ones like mortgage, bills, taxes, the finance for the sofa (ouch!) etc. and the amounts.
It is extremely important to have a clear idea of all our bills, because that’s a good portion of our monthly expenses.
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Then, I add the estimated budget for all other categories: e.g. groceries, eating out (a big spending point for us), commuting costs and house stuff.
We recently moved into our first house together after years of rented flats and shared accommodation, and it’s crazy how much stuff you need to run a house.
I add all my monthly savings.
In the same way as expenses, I budget my savings and treat them as fixed costs.
Some of them are automated amounts that come out of my bank account each month, but others are manual so I track them all here. By allocating a portion of the budget, I make sure I can ‘afford’ them and therefore meet my savings goal each month – winning!
Then, I make sure the total of my expenses equals my monthly salary.
If my paycheck goes up, or I manage to lower some bills, then whatever amount I have left goes to my savings, not to increase the allowance in some other category!
Initially, it can take a bit of time to define your budget or check your bills. However, once it’s up and running, your budget should rarely change, unless there is a change in your circumstances and you need to account for unexpected expenses.
Step 2 – Define tracking method
Then I track my spending each day.
Looking for inspiration on how to track your spend? Read my post: how to take control of your finances for free.
As my expenses come out of either the shared account or my personal bank account, I use:
Monefy – for grocery and house expenses. Every time we spend money I log its amount under one of the categories reflected in my budget. It only takes two seconds, and saves me loads when I review it at the end of the week/month.
Monzo – for commute, lunch at work or general expenses. These expenses are my own and don’t come out of the shared bank account. I have set up a standing order from my main bank account with the budget amount for the week and I work with that.
Step 3 – Reviews and checkpoints
Ok, I am a weirdo and I quickly check my expenses against my budget daily, but weekly reviews also are fine. You can even switch to monthly once you are comfortable your budget is correct.
I like to review my spend on a Saturday morning and check that it’s tracking ok against the monthly budget. Frequent reviews give me a good idea if I am on track or need to be a bit careful. It only takes 5 minutes once I have the template and method set up.
Finally, I do a full review at the end of each month and update my spreadsheet with the total spend for each category. If I have saved any extra money from my monthly budget, that goes directly in the savings account. Then the new paycheck comes in and I start all over again!
There are so many different ways to budget, and personal style often evolves with time. For example, I am keen to automate some of it in the future.
Once this happens, I will make sure to share my findings here.
How do you budget?