Draw up a budget if you want to become a money saving expert

Divorcees face losing out on thousands in retirement income Photograph: PA
Divorcees face losing out on thousands in retirement income Photograph: PA
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When people are looking to get their finances into shape, the first piece of advice they’re often given is to make a budget.

Sounds simple – but is it? With many people looking for a fresh financial start for the new year, getting this crucial piece of money management wrong could see them fall at the first hurdle.

So how can you transform your budgeting skills to get on top of your finances for 2018? Here, Steve Nowottny, news and features editor at MoneySavingExpert.com, shares some expert insights.

Why is making a budget so important?

Nowottny says budgets answer fundamental questions. “‘Do I spend more than I earn?’ is probably a question that everyone should be able to answer,” he says, adding that there’s an element of being honest with yourself – and it can be an “emotional process” to sit down and properly go through your spending. “You’re being forced to face up to your actual financial circumstances,” says Nowottny. “Once you’ve got a really accurate budget, you’re forced to stare it in the face, and then you can do something about it if you do have financial problems.”

What if doing a budget just sounds too complicated?

Nowottny says that, even if it’s not perfect, doing some kind of budget is important and better than not having one at all. “While certainly you should do the most accurate budget you can, if that puts you off and you’re daunted, the first thing is try and do some kind of budget.”

So how can I get started?

Nowottny suggests breaking spending down into chunks. So, rather than just putting “travel”, this could include petrol, motor insurance and maintenance, for example. That way, you’ll get a more realistic picture of everything you’re spending on and exactly where your money is going.

How can I work out how much I spend?

Rather than guessing, physical evidence, like receipts and bank statements, will show the difference between what you think you’re spending and what you’re actually forking out. Nowottny says: “If you do that over a period of a couple of months, you will get a good feel for what you’re actually spending. It might be you estimate that you spend £400 or £200 on groceries in a month – and then you’ll find over time that actually, you’re not spending that, you’re spending more and you’ve got the receipts to prove it, and therefore you need to adjust your budget accordingly.”

What pitfalls should I watch out for?

While many people may look at how much they spend over a month, this could mean they miss the big one-off spends, such as Christmas, holidays or a new car. Nowottny says bills paid annually, such as home insurance, may also end up getting forgotten about. “However you do that, you want to make sure that you factor that in,” he says.

How often should I review my budget?

Nowottny says: “If you plan everything out perfectly at the start of the year, it’s surprising how much things can change. If you can do it once a year then brilliant, but if you can do it more frequently you’ll feel more on top of it.”

For more advice, visit MoneySavingExpert.com.