Basic Budgeting Tips: Lets Create A Budget Together

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Let’s Create A Budget Together

Today I’d like to give a short overview into the benefits of budgeting by showing you a basic example of an average 18-25 year old male in the UK.

Let’s make the assumption that he is living by himself in a rented property, and is earning about £20,000 per annum as a Content Editor for a social media company. I’m also making the assumption that he doesn’t have access to a car, and uses regular public transport to get to his destinations.

Expenditures

The first requirement to making a successful budget plan is being aware of all the monthly outgoings that are leaving your account.

Note: I am not taking into consideration his monthly personal subscriptions – those will be deducted from the disposable income.

  • Rent: £600
  • Water: £40
  • Gas/Electricity: £50
  • Food: £150
  • Internet: £20
  • Sky/Virgin: £70
  • TV License: £10

Income: £1,600
Expenditures: £940
————————
Remaining Income: £660

Unfortunately for many people, it is living within or rather, below these means that causes the most trouble/stress.
From the same example, let’s assume travel is £40 a month – this leaves him with £620 for their personal use and savings.


Savings

Savings are critically important to having a successful budget plan. It’s a good way to save money for larger purchases later or for a rainy day. I don’t understand why people don’t save a reasonable amount of their income.



Excuses such as “I can’t do maths.” are just suicide, as the more you tell yourself that, you’ll only be hurting yourself in the long run. If you genuinely can’t do mathematics, then start learning how!. It is vital.


Moving on I personal opt for a 50:50 split between goods and savings purely because of two reasons:

If you’re more spendthrift, then a 60-40 split, or 70-30 split in favour of goods may be more beneficial to you.
Using the same example:

  • 50% – 50% = £310 / £310
  • 60% – 40% = £372 / £248
  • 70% – 30% = £434 / £186

I personally wouldn’t recommend you going for a 70-30 split, especially if you’re a high-spender. High-spenders need to learn to be more frugal, as it is their habits and behaviours that are leading them into financial ruin.



For an individual on a 70-30 split – over the course of 5 years, assuming your salary did not change, and disregarding interest completely. You would have only garnered £11,160 in savings following this method. This is a relatively respectable amount of money to have accumulated in 5 years – however, you could have much than that, if you exercised just a little delayed gratification.


In fact you could save 66% more over the same timeframe by adopting a 50-50 split; giving you £7440 in extra savings, and a total of £18,600. (Disregarding savings and inflation) That is huge!


Personal Subscriptions

I define personal subscriptions as services of entertainment or value that you have signed up to on your own will. Or rather, they’re things you want or need, but don’t fall into the category of life essentials: Food, water, shelter etc.

Assuming you are adopting a 50-50 split, £310 a month is set aside for your personal subscriptions AND all potential purchases you may make within that time frame.

Here is what your budget plan would look like after you have gone through all the above.
EDIT: I forgot to add phone. Which let’s say is £40 a month.
————————
Expenditures: £980
————————
Rent: £600
Water: £40
Gas/Electricity: £50
Food: £150
Internet: £20
Sky/Virgin: £70
TV License: £10
Travel: £40
———————
Subscriptions: £40
————————
Phone: £40
Goods: £290
Savings: £290


According to the above, you have about £290 to spend on whatever the hell you want to spend it on. This works out to roughly £9.35 a day. May sound pretty modest to you, but it will actually go a very long way. As you can see, I have extrapolated the figures to a great degree and yet this individual could still afford to save a good amount without curbing his spending too much.

The key to budgeting is just about finding out exactly how much is coming out of your accounts on a monthly basis, and setting up a proper plan that will enable you to reach and surpass your financial goals.

If you have a credit card that you’ve run over the limit. Then I have a couple things to say. Firstly, shame on you. Secondly, here is a start to solving your debt.

  • Add the amount you feel you’ll be able to pay back monthly to the expenditure list, and deduct this value from either your goods or savings allowance.
  • If you can’t do this, then cut some of the unnecessary subscriptions and services that you just don’t need. At least until you get yourself back in black again.
  • Even if your figures look extremely similar to the ones I’ve posted here except that you’ve got a credit card of £4k+ to pay, with minimum payments of about £100.
  • Make payments of £150 a month towards that credit card every single month until it is cleared. Yes, you will be practically living on the edge – but you see that £290 savings figure? This is the perfect time to cut that down as much as necessary until you’ve cleared your outstanding debts.


Hope the above helps. If I have missed something out, let me know in the comments section. What budgeting tips do you have to share? Let me know your thoughts below.


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© 2014 David J Oragui