The Guide Top Ten: There's always time for a personal spending review

Published on 20/10/2010 22:15

The UK government has finally unveiled its spending cuts - now it's time to subject your own finances to close scrutiny and identify where you can make savings. Gavin Littlejohn, chief executive of Money Dashboard, shares his top tips on effective budgeting.

• Like George Osborne, we should all carry out a comprehensive spending review Picture: PA

1. Don't wait for problems

If you look to the future and plan ahead with a realistic budget, you can prevent financial chaos from happening in the first place. If only the politicians had managed to do that, you're probably thinking. Well, they would probably argue that's exactly what they are doing now.

2. Set a budget

First work out your income. Then calculate regular financial commitments like mortgage payments, rent, council tax, insurance, mobile phone bills, pension contributions and food costs and subtract this amount. The remainder is the disposable income that you have left to save or spend. Set your priorities and allocate this remaining spending money across these items. Remember to set a savings target at the same time, so you can afford larger items like a holiday or a new car in the future. Savings are also there for unforeseen costs, such as your car breaking down and needing repaired, or having to call out a plumber. But make sure you've paid off any debts first, before you start to save.

3. Less is more

Setting a budget doesn't have to be time consuming. A little effort put in up front can save a lot of effort in the long run. If you always know your financial state of play, you can relax and enjoy spending your money without feeling anxious or guilty. You can also save for the future, achieve your aspirations and not find yourself overstretched and building up debt.

4. Online help

Financial planning tools can make it easier to see your spending pattern, set a budget and keep track of your spending. Often free, they are considerably more sophisticated than an excel spreadsheet. These days they can automatically synchronise all your online finances for you, so your banking and credit card transactions are brought together in one place in a secure format, with virtually no effort on your part. You can also set up alerts that will remind you when action needs to be taken or if you are straying from your budget or savings target.

5. Avoid guesswork

A close analysis is the only way you can see where your money is really going. So monitor it properly over a period of weeks and months and you might get a few surprises. That means looking at your credit card bills and bank statements and keeping a note of where cash withdrawals are going. How else are you going to know how much you really spend on clothes or meals out, or spot if you are frittering cash on takeaway food? If you've never assessed your spending pattern in this way, you might even find it fun and insightful.

6. Be honest with yourself

Remember that your budget will only work if you are realistic. You need to do the ground work above and set a budget that is achievable, or you will find it disheartening and quickly give up.

7. Keep track

Don't fall into the trap of carrying out a thorough review of your finances and getting everything ship shape and under control only to then fail to monitor how things are progressing. That's a wasted effort.

8. Regular check-ups

Do take stock regularly of your finances, at least once a month, although a quick weekly check to see if you are on target is much better, particularly if money is very tight or you are planning your way out of debt.

9. Keep calm and carry on

Don't panic and give up if you find you've blown your budget - simply devise a plan for getting back on track. See where you can cut back, set your priorities and plan ahead.

10. Spending review impact

Think about the full impact of the government's measures on you and your family now and in the year ahead. Your car might get away with an annual MOT, but your family and your lifestyle are much more precious, so your finances require more frequent reviews. Your income, the cost of living, your plans for the future and your financial outlook change all the time.

Even if the review doesn't affect you directly right away, the cuts could impact on job security across a range of sectors in the future and council services that you use for free could disappear. Make sure everything is under control and that your hard earned money is working as best it can for you.

• For more information: www.moneydashboard.com