One of the most common comments that you hear people making about budgeting, and the one thing that puts people off the idea of ever doing one, is that it is about not spending money!
But that is simply not true.
A budget, at its simplest level, is about knowing how you spend money. And knowledge, as they say, is power especially when it comes to dealing with your money
At the risk of teaching your granny to suck eggs this page is pretty basic. But I make no apologies for that because it is often the basics that trip us up! I was talking recently with a bunch of Solicitors (if that is the collective term) and we discovered that one had three gym memberships and another spent a three figure sum every month on coffee from a well known coffee shop! Now the super-fit solicitor with three gyms was well impressed that she could cancel two memberships, stay fit and have more money to spend every month but the other, while surprised the figure was so high, was quite comfortable with his caffeine intake because he reckoned he earned enough to justify the expense!
The interesting thing here was that before I spoke to them they didn’t know about the multiple gym memberships or the expensive coffee habit. If fact they didn’t know an awful lot about how they spent their money every month – and in that they’re no different from the rest of us.
So before we start to look at how to put a budget together there is some work to do. And this is probably one of the single most important exercises you will ever carry out in connection with your money. And I’m not overstating its importance by saying that.
You need to keep an absolutely accurate note of everything you spend for a period of at least a week but preferably a month! The coffee on the way to work in the morning and the newspaper or magazine to read on the train and the sandwich and mars bar at lunchtime and the gin and tonic on the way home and the DVD you rent when you get home. Everything!
And be honest with yourself. You’re not doing this for me or your bank manager or your boss or your partner. And you’re not doing it because you are trying to figure out what bits you are going to have to cut out. You are doing it because the starting point in putting together a sensible budget is to understand how you spend money.
The big stuff is easy – your mortgage and car loan and council tax all come out of your bank every month and you can quickly add them all up and work out how much they total.
It’s the daily money that gets lost. And that’s what you need to get a handle on before we can pull it all together in a sensible format.
And remember this exercise is to help you spend, not stop you spending