The importance of budgeting

This week’s article isn’t rocket science, but an important one to raise, nonetheless. This is a simple one to tackle, but my experience tells me that many clients I meet have no idea how much they are spending each month or on what.

The biggest culprits are often those pesky millennials (it’s always their fault! – p.s. I am one too), many of whom have developed the mindset of living for the moment and not planning for tomorrow. This lifestyle is admittedly great fun whilst it lasts, but ultimately could contribute towards future financial stress and worry. I am sure we all have those friends who can barely afford to buy lunch the day before payday….

It’s fair to say that it is not just millennials who have difficulty budgeting. More often than not, I speak with prospective clients who are at the point of retiring and have no idea how much income they actually need to maintain their standard of living. Sadly, for these individuals they don’t have the time to make up any shortfall.

One day, we’d all like to be in a financially secure position that gives us the option to reduce the working week, retire early or be able to afford that around the world trip you’ve always dreamed of. Unless you win the lottery, this won’t happen by chance. Saving and investing from a young age will help you dramatically in the future.

The exercise of budgeting properly will take a few hours, but I’m certain you will find it worthwhile. It will give you peace of mind and confidence in your financial position. Dare I say it, you will probably find that you have more spare money available than you realise.

Tips for budgeting:
• Use several bank accounts to separate your finances. For example, separate your house bills from your food account and holiday account.

• Take time and care to go through all your individual direct debits and factor in any annual subscription or membership fees.

• Try to gauge roughly how much money you spend on social events each month. This will vary, so leave yourself a buffer in case you go over.

• Look at where you can reduce outgoings – being organised with your food shopping and taking last nights leftovers for lunch will save a huge amount each month.

• Build yourself an emergency cash fund equal to 3 months’ salary. You never know when your boiler or a kitchen appliance will break, or even worse you could find yourself out of work short term.

• PAY YOURSELF FIRST. Once you have calculated your surplus income each month, transfer this to your savings the day you receive your salary. The same goes for sending a standing order to pay for your house bills, food account and holiday account. The money left in your current account is your spending money for you to enjoy.

Should you like an expenditure questionnaire to help with your budgeting, or some help investing that surplus money, please send me a PM.

Edited by Goal Machine (11 May 2020 9.46am)

The self employed still qualify if they've paid Class 2 stamp don't they??

It's not just them I have loads of friends in their fifties and sixties they are self employed earn a decent wage, rent and have no savings or pension. They will be working until they drop dead. It's their money so they can spend it how they like but you know they will be bitching about the state pension when it's time to retire.

You advice is pretty much what I have done since I started work and into retirement. Pay the bills first save a little and then whatever is left is mine to pay with.

Edited by Badger11 (11 May 2020 10.12am)

Employee benefits with respect come from earning less and having no choice whether to invest or not.
Self employed also pay less tax and NI. there is no excuse I'm afraid.

Lots of lost/forgotten final pensions too.

[Link]

Good article, Chris. 800,000 missing pensions in the UK worth an estimated £10 billion is quite astonishing.

An equally worrying statistic in that article is that the average defined contribution pension by state pension age is £28,000. For a healthy individual, this would buy a no frills guaranteed income, known as a lifetime annuity, of just £1,100 (£92 per month). This really highlights the pension income shortfall problems we are facing in the UK.

Here is the link to the governments lost pension tracing service: [Link] For those who have worked with several different employers and are not monitoring their pension savings, I’d strongly recommend using this. You could be in for a nice surprise.

Generally, it is good practice to transfer your old pensions to your current employer scheme, where possible (excluding final salary pensions). This makes it easier to keep track of your pension and often your current employer will have negotiated discounted charges, so this may reduce your overall ongoing fees.