It’s so easy to spend a little here and a little there; to treat yourself every now and again. So many of us like to get an extra cappuccino on a cold winter’s day or pick up a bargain in a store’s sale. But how often has this led to you having no money in the bank well before your next paycheck? Or worse still, coming up against a bill with a tight deadline and no cash to cover it?!
More than likely, you’re not spending money based on your priorities. This is a simple yet essential part of financial planning to ensure that you’re comfortable with the cash that you’re earning.
To draw up a budget, first you need to see where you’re spending money unnecessarily. It’s so easy to hand over your credit card for a nice treat here and there, but if you don’t realize how these little purchases add up you won’t be able to cut them down.
Why Am I Buying This?
This may seem like a silly question, but it’s a good foundation to base your budget on. Look at your priorities and decide why you’re making this purchase. Do you need it, or do you want it? Is it essential or is it an added bonus? When you ask yourself why you need to buy something, you may find that you can’t answer the question. These purchases are often the clothes that end up hardly ever being worn, or the trinkets that gather dust on the sideboard. If you can’t justify buying something, then don’t buy it. Concentrate on your priorities.
If you’re concerned that you can’t cut your spending on your own, speak to friends and family (you’ll be surprised how many have been in the same situation!) or speak to professionals. Websites such as MoneySavingExpert have a wide range of advice and articles to help you. There are also budgeting apps that may help you to keep on track with how much money is in your account at any particular point.
What Are My Priorities?
It’s important to ask yourself this question when setting out a budget for your finances. It will help you to spend money based on your priorities if you have a clear picture of what these priorities are. Speak to other people in your household to see what matters to them too, so that you have a clear idea of what you’re all working towards.
Some things, such as rent, cannot be negotiated without a huge upheaval. Other things, such as groceries, can be more flexible but still relatively constrained whilst things such as eating out can be cut down to a bare minimum – or even zero – if you need it. Your priorities may include:
- Housing (rent or mortgage payments)
- Utilities (gas, electricity, phones, etc.)
- Other basic needs (such as health and food)
- Car and household maintenance (gas, repairs, etc.)
- Loan repayments
- Emergency funds
- Paying off old debts
- Savings, e.g. for retirement or for a vacation
- Entertainment (Try to be specific! Think about what matters the most to you. This could include game subscriptions, clubs, music lessons or dining out.)
- Clothing (try to distinguish between what you want and what you need)
A good way to spend based on your priorities is to automate any payments that you can. For example, monthly payments towards your rent/mortgage, savings into a separate account or loan repayments. Try to schedule these for shortly after your pay date each week or month so that you have a clear picture of what money is left over for other purchases.
When spending money based on your priorities make sure that you’ve considered exactly when money will be leaving your account. Not only is it likely that you’ll have regular payments each month, but you may have payments that are due once a year. (These don’t just include necessities such as insurance premiums – don’t forget about Christmas and birthdays!) Make sure that you count these in when you’re planning your budget so that you have the money available when you need it.
Don’t be too unreasonable when spending money based on your priorities. A harsh budget is much harder to stick to, so give yourself a little bit of breathing room. After all, we’re all human! Set yourself goals or times when you’re allowed to treat yourself.
Having these priorities clear in your mind will help to motivate you and keep you on course. For example, you may not be able to go to the movies as often, but you’ll be happy in the knowledge that you’re on track in saving up for that vacation you’ve always wanted to take. You may also find that by spending money based on your priorities you’ll feel more fulfilled, with a more positive and constructive view of your life.