With the Christmas bills having thudded onto doormats and the squeeze from rising living costs expected to take a tighter grip on household finances in the coming months, many people will be mulling over how they can steer their finances back onto the road to recovery.
A research project by financial services mutual Royal London has shed some light on whether a budget could help.
Some of its customers used smartphone budgeting apps, while others preferred to use a pen and paper, over a three-month period.
While budgeting wasn’t for everyone and some people gave up, around half (49 per cent) of those who kept going said budgeting was helpful.
More than a third (37 per cent) said they have a better understanding of their income and spending and 34 per cent said budgeting has improved their ability to track their spending.
Several people said they had tried budgeting in the past, but would end up estimating how much they had spent. But by having to write down or enter into a budgeting app every item of spending, they had a much better idea where their money went.
Some were surprised by how much they had underestimated or overestimated their spending in certain areas. By seeing it all written down, they could identify areas where they were spending more than they wanted to, such as on eating out, takeaways, transport or socialising. This helped them identify where they could make savings.
Some also discovered there were areas of spending they hadn’t taken into account, such as buying birthday gifts.
Others spotted patterns in their spending, with one person saying they had realised that they made needless purchases on the day their pension was paid in, and another realising they often overestimated their bank balance because they weren’t sure of the dates of various regular payments coming out of their account.
By identifying where they were going wrong, they were able to change these patterns.
And around a quarter (26 per cent) of people now feel more likely to discuss their household finances with their partner, or family, or other members of their household.
Some reported making significant changes to their behaviour, including shopping at cheaper supermarkets, cycling to work and cancelling long-forgotten regular payments.
Some also cut out impulse purchases in favour of saving the money instead.
Sir Steve Webb, Royal London’s director of policy, said: “What was interesting about our research project was the way in which the simple act of monitoring what you spend every day or week made some people more aware and put them more in control of their finances. They were then able to make their own choices about priorities.”
So is there a difference between using a notebook to monitor your spending and using new technology?
The study found that despite the preference among some people for the latest technology, a pen and pad of paper can work well. Three-quarters (74 per cent) of people who used this method of budgeting said it was good or very good at encouraging them to interact with their finances.