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As we sit in the midst of a global pandemic, we are now also facing the beginning of an economic recession. Many people are losing their jobs, facing reduced work hours or simply fearful of impending financial struggle. Preparing a budget in case of emergency is one way to ensure that you don’t end up in a dangerous financial situation, reaching to credit in some way to get you through. Beyond helping you to save money, a budget will help you to both become and remain in control of your finances.
In fact no matter your current circumstance, or any upheaval going on in the world, my personal belief is that you need a budget. No matter your financial situation, you should have a budget prepared. Whether you’re a new student scraping your pennies together at the end of the month or the CEO of a large company and very much comfortable. Finances, love or loathe them, are an important part of life and need to be looked after.
What is a budget?
In short, a budget gives you a clear and easy to understand run down of all the money that comes into and leaves your household. I use the word household here to keep things simple, but you can of course adapt to your personal circumstances. Using your pay slips, bank statements, receipts, email notifications and anything else that might help you track your finances, you can create a clear picture for yourself of how you are handling your money and most importantly, where it is going.
You may be reading this and thinking “I know where my money goes”. I challenge you, could you honestly tell me how you spend every single penny? Could you tell me how much money is in your account right now? If you have debt, could you tell me the exact total at this very moment? Being familiar with these figures is the fundamental foundation to healthy finances.
Beyond forming an understanding of your money, a budget then allows you to control it. It is at this point that you can begin to look ahead, saving for important life events, paying down outstanding debts and of course, preparing for an emergency.
How do I create one?
The most simple way to create a budget is with a pen and paper. Create two columns. One for incoming and one for outgoing. Pull together pay slips, bank statements and all other relevant records and begin writing down the numbers. Immediately you will see your current budget, be it good or bad. From there you can make adjustments.
For further support, use a calculator. The numbers can become overwhelming and let’s be honest, when life is busy the thought of sitting down and doing a whole lot of maths doesn’t sound fun. Finding a tool which works for you makes the process of budgeting so much easier. Pigly’s website has a brilliant range of free to use calculators, including one specifically designed to help inform your budget. They even provide specific categories, which helps you to be specific and make note of expenses which you might otherwise forget about.
Finally, follow Dave Ramsey‘s guidance. He is direct and has a clear, no fuss approach to money. Most notably, he advises you to be honest with yourself and stop relying on credit. A couple of years ago I read his book, The Total Money Makeover, which got me started on my own journey to improving my finances and I cannot recommend it enough. His website is also packed with brilliant resources.
How do I stay on top of my finances?
Check in every single month. Not only can your finances change due to external influences such as income. Your spending habits will also change throughout the year depending on what you have going on in your diary. So many people are caught out in the run up to Christmas for example. They have enough money for their usual bills and expenses, but forget about the extra spends which come in the form of gifts, food, drink and Christmas parties. Annual bills are another inevitability that catch out so many of us, leaving us short at the end of the month. Always look ahead and enable yourself to be prepared.
Following up to date financial advice is also a great way to stay on top of your money. You don’t need to read the financial broadsheet every Sunday, but it is important to stay educated. Keep things simple, following any key updates in the news for example. Money Saving Expert is a brilliant website which is always full of up to date information regarding all aspects of money. Martin Lewis is known for his expertise and timely advice and discusses a huge variety of topics each day. From mortgages and savings to what to do when your holiday is cancelled due to say…a global pandemic, if you have a question he is likely to have the answer.
Once you have an awareness of your budget you can adapt it to suit your needs and to prepare for the future. Pay down debts, set aside some savings for a future wedding or house purchase and enjoy your money a little more now without stress. Most importantly, you will be able to set aside some money for potential emergencies and know exactly how to adapt your budget to get you through, should something unexpected occur.
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