Rule One: Keep record of everything you spend on a day-to-day basis. Budgeting and dieting are very similar in that keeping a record, or a diary, increases the probability of success. I believe that this is mainly because in both cases ‘if we do it quickly’ our brains don’t register what we have done. Most people won’t remember how many coffees they had, or for that matter how much these cost. Just like we don’t remember the sneaky chocolate bar we had after lunch. Keeping record of all our expenditure can be good for our pockets, for our waistlines and for our health. Initially at least, this record should be sufficiently detailed – what was bought, how much it costs, when was it bought and how did you feel before and after. Looks cumbersome but carrying a special notebook that fits in a handbag or a trouser pocket, a day on every page and columns for the different information, can make it less so: drawing a happy or a sad face will do.
Rule Two: Work out your constant, changeable and variable expenditure. For this it is likely to need to go to bank statements as well as your spending records. Check the definitions of these here .
Rule Three: Work out what matters to you. What are the things that matter, the experiences you value, the people you care most about?
Rule Four: Once a month reflect on your expenditure (all three kinds) through the knowledge of what is important to you. Are there things that you pay for but actually don’t care about? Do you live in a large house with garden when all you have ever wanted is a nice apartment in the city centre? Do you support financially other people and is this really the best thing for them?
Rule Five: Every month set a certain proportion of your income aside. Here the advice from across the Atlantic is to put in savings (and/or debt repayment) no less than 20%. If we are talking savings, I think that for Europe 10% is sufficient (Americans generally include their savings in pension funds in this 20%). It doesn’t matter how small your income – 10% transferred in a savings account at the beginning of each month can be done. Do not raid this account except in really serious emergency.
Rule Six: Pay your constant expenditure next, preferably early in the month. These payments can be automated – check them regularly but remember that it is difficult to alter or avoid them. Except if you are prepared for a change in lifestyle.
Rule Seven: Pay your changeable expenditure next. This can be automated but need to be checked regularly; ideally every couple of months. You may find that you can cancel direct debits and/or standing orders you no longer need or want to continue (gym memberships and subscriptions are prime examples). Always shop around when something needs renewing (house and car insurance, for instance).
Rule Eight: Changeable expenditure is best controlled when in cash. Set a realistic amount that you will spend per week, take it out of the bank and that is it; when the cash finishes you simply don’t spend anymore. I also found it useful to have some ‘pocket money’ every week. I have £10 per week. Interestingly, the first weeks it lasted till Wednesday, after that it started lasting till Friday. Now I very rarely spend it during the week; usually it collects and then I either buy something bigger or have an experience.
Rule Nine: Make sure that you always leave space for the unexpected. Don’t be surprised – things happen, life happens. This is best done by building an ‘emergency’ fund of about £1,000. I know it was very handy when all our electrical appliances broke during the same month.
Rule Ten: Always make sure that you spend a proportion of your income on having fun and doing the things you really enjoy doing. This rule should be followed irrespective of whether you wish to save quickly, pay your mortgage off by 40 or have ‘negative wealth’ to pay. Spending on fun and on oneself can be hard – I felt very guilty about this as well. My solution? I started the ‘I am so worth it’ fund where a certain proportion of our income goes – about 6%. Ideally this should be emptied every month but even managing to spend half I count as a success.
Budgeting rather than having a budget made my life much better; I spend less, save more, pay more ‘negative wealth’ and don’t feel deprived. If anything, I feel empowered. Worth a try!
PS: BTW, this is not a cartoon of me – I don’t look like that at all.