Through the course of daily activities, financial concerns rotate within your set of personal priorities. One day, paying bills occupies the top spot, then it’s accomplished, and your attention turns to the next most important personal finance issue on your agenda. Managing this flow of cash concerns is a substantial undertaking, so it’s easy to lose your place, keeping your finances in order. Working out a budget and using it to guide you can help ease worries, enabling you to cover all your financial responsibilities, without losing track of important obligations.
Effective budgeting accounts for several important aspects of your household finances. The Mrs. Mummypenny blog recently furnished an article full of budgeting information, offering one example for organising your finances in 2019. The method she shared allocates a percentage of each month’s turnover to individual pots, addressing various spending obligations.
Though your own breakdown may not reflect similar figures or align with the priorities outlined in the example, the budget template provided covers most of the angles you’ll encounter in your household budget. Working out a percentage for each category prepares you to direct money to the various pots each month, so you don’t come up short in a particular spending area.
Household bills comprise the lion’s share of most family spending, so this chunk of money represents a substantial piece of your overall budget. Each household money manager slices budget pieces in ways that make the most sense, under individual circumstances, so your budget breakdown may not look exactly like your neighbor’s, or precisely mirror the example. The household bills category typically captures costs such as:
- Energy bills
- Housing – rent or mortgage
- Assorted contracts and services
According to the example shared, monthly bills can reasonably be allotted 35 per cent of your budget. If you’re over on the estimate, excess funds can be used for repaying outstanding debts or diverted to your household emergency fund.
Rainy Day Resources
You never know what kind of unexpected expenses will arise – or when you’ll need extra money to cover them. A household emergency fund sets by money in reserve, so you have a pot to draw from when spending spikes. Need new tyres on the car? Plumbing problems in the kitchen? Telly give way? Maintaining an emergency rainy day fund ensures you’re covered when a one-off spending demand pops up.
In addition to addressing unforeseen spending needs, emergency resources can also serve as supplemental income, when the flow of earnings is uneven. Money in reserve is particularly helpful for self-employed Britons, who may experience irregular pay cycles or seasonal dips in personal income. Funding can also be obtained from UK lenders online, bridging spending gaps between paychecks, without deep credit checks.
Money for Leisure
Effective personal budgeting isn’t about depriving yourself. On the contrary, your spending parameters should include money set aside for doing things you enjoy. Rather than feel guilty for occasionally treating yourself to meals out, a show, or a trip to the cinema, a well-conceived budget accounts for fun money. That’s not to say the sky is the limit, when it comes to leisure spending, but devoting a single-digit share of your overall spending, perhaps 5 per cent, gives you a reasonable fund to tap for recreational activities.
Reducing Debt Balances
Debt you carry over from month to month adds to your overall cost of living, incurring interest and finance fees. Worse yet, as your total personal debt expands, so does your interest obligation. Left unchecked, the burden of growing debt can have a negative impact on your monthly cash flow, interfering with other aspects of your budget.
If you’re actively working to catch-up from past overspending, drawing down your credit card balances and other debt obligations, it’s probably a good idea to move most of your excess cash to the cause. But even under normal circumstances, a portion of your earnings should be devoted to wipe debt balances in a reasonable amount of time.
Money you eventually save on debt repayment can help you reach your savings goals and move ahead with other closely-held financial priorities. Each person’s financial circumstances are unique, so it’s up to you to work out an affordable debt repayment plan that leaves enough money to manage your other bills. If you’re not sure how much you can devote to debts each month, challenge yourself to do better this year than last year, and build upon your progress, wiping balances.
It’s easy to lose your place managing money, sometimes resulting in monthly shortfalls. If you’ve experienced problems covering your entire financial obligation, or simply need more structure to your finances, budgeting a percentage of your earnings to individual payment pots can help you stay on track.