Beginner’s Guide To Budgeting
Make 2018 the year you sort out your finances.
In mid November, the Evening Standard wrote a story on a new report from the letting agency Strutt & Parker that claimed that millennials couldn’t afford to buy a house because of outrageous spending that could easily be cut. According to their calculations, young people had thousands of pounds they could save annually, suggesting cutting out purchasing sandwiches (which they claimed cost over £2,500 annually) and money on the National Lottery (which they also argued millennials spent almost £1,000 on annually).
This report was, rightly, met with an onslaught of fury from millennials and their supporters alike. The idea that young people are spending what would be their life’s savings on sandwiches and lottery tickets is not only wrong, it seems bizarrely pulled out from nowhere. This story arrived in the wake of similar outrageous millennial-financial myths, such as a comment from an Australian real estate mogul which said that young people today couldn’t afford to buy homes because they spent all of their money on avocado toast. However, all this stems stems from a kernel of truth; a problem faced by young people that goes beyond the systemic problems they face from years of austerity and a global financial situation that is entirely out of their control.
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The kernel of truth in it is this: a lot of millennials don’t know how to budget. At no fault of their own, many of them have left home and gone into work/college/university having no idea how to handle their money because no one taught them how to do it (or even where to start).
The baby boomers may have left us hanging, but we’re here to give you a hand and give you the lowdown on creating a real, actually feasible budget. From start to finish, here’s how you can build a budget you’ll stick to:
Take a week and write down everything you spend
This is where most people fall down in their budgeting plan and can’t manage to get themselves back up. If you try to make a budget out of thin air without seeing what you’re actually spending, there’s very little chance that you’ll be able to stick to it. Take a week and track what you spend -- this means bus fares, coffees, meals, drinks, cinema tickets, clothes, etc. It may seem like a pain to keep a financial diary, but it’s only 7 days and it’ll do you wonders. From that you can parse down where your money goes.
Excel is your friend
Even if you’re not using it to do any major calculations or tracking mass spending (although I would recommend autosum, friends) using a spreadsheet just to have a table of your spending each month can help you see where your cash is coming and going. You don’t have to do a major breakdown, it can be as simple as just having ‘Food’, ‘Nights out’, etc., but having it so you can see what you *should* end up with at the end of the month.
Cut where you feasibly can
After you build your table and see how much you’re spending on what, see where you need the wiggle room and could use a bigger budget and where you can cut. Realised you could pay for a bus pass and save £20 a month? Do it. Able to sacrifice a coffee a week? That’s another potential £20 in your pocket. Could you start packing your lunch most days, and only spend one weekly lunch out? That could be nearly £100 more in your bank account a month. By doing these small, arguably quite easy changes, you could have way more money to spend on the things you enjoy more, whether it’s a boxing class or a new item of clothing every week or even just more money to spend when you go out.
Plan to save
Nothing is worse than, after figuring out you whole month, some unexpected expense pops up. Maybe it’s a cracked phone screen, a late wake up and mad dash to the airport, or an extra big gas bill. Regardless, you want to make sure you have cushion in place so that your whole month isn’t in flux just because of something beyond your control. Try to save a little bit of cash each month (a good rule of thumb is somewhere between 5%-10% of your monthly income) and keep it stashed away FOR REAL. Ultimately, if you don’t end up spending it at the end of the year, you’ll have room for a fun treat, whether it’s just a nice meal or as big as a short holiday. Wiggle room is important, which brings us onto another equally important tip for realistic budgeting...
Make room for treats and splurges
Let’s get real, we all like to (insert Parks and Rec gif) TREAT OURSELVES every once in awhile. My thing is posh meals, your thing might be nice shoes, or blow our weekends, or a show or a class. Whatever it is, give yourself enough dosh to have a bit of fun. Beyond planning for your nights out, plan a bit in for ‘entertainment’ whatever that means to you. This means you won’t end up feeling guilty for spending what would be your food or rent budget on something that you, ultimately, could afford.
Reassess, reassess, reassess
Much like with our first tip, you won’t be able to stick to your budget if you’re not being realistic about how you’re spending. This means that, every couple of months, see how you’re getting on. Maybe you realise your nights out are a lot more expensive because you’ve just moved to a pricier city or you notice that you actually don’t need to spend money on a full bus pass because you’re walking to and from work/class most days. Checking in on where you need more cash and where you could actually cut down will help you spend smarter and have more money for things you care about more.
Whatever you want to spend your money on, get tracking it and be realistic. It may be a bit of work up front, but trust me, it feels empowering as hell (and honestly, like a massive relief) to have your financial shit together.