STEP 3 TO CREATING A BUDGET
So you've worked out your total debts, savings & how much you have left to spend after your fixed bills and minimum debt repayments go out each month. You're now ready to get going with the rest of your budget!
The next step is to calculate your variable expenses.
You might be wondering where the savings and debt overpayments are fitting in to all this are. They will come, don't you worry.
But before you know how much you can save, you need to know how much you spend. This way, your budget is realistic and you shouldn't need to dip into the savings you put away.
Depending on how your budget looks in the final steps, you can tweak any amounts if needs be!
Firstly, work out your actual spending for lifestyle costs.
My general spending per month consists of grocery shopping, petrol, fun money, a gym membership and a nail appointment.
This is the minimum I tend to spend for my basic lifestyle costs.
So the balance I had left after bills from Step 2, minus the amount I budget for the above items in Step 3, is what I then have left for sinking funds, savings, investments, debt and other goals.
I will do another post dedicated solely to sinking funds, but in short they are larger costs throughout the year that you put money aside for each month. I might not spend sinking fund money each month, but I treat this as a general expense by putting a little aside each month toward these costs.
By putting money aside into sinking funds, it means when larger costs come up (Hello Christmas, birthdays, haircuts, holidays, glasses, car insurance etc) I am already prepared for them so don't need to reach for an overdraft or credit card.
This process has changed my life and made me feel so in control of my cash!
For me, because this money is designated to a particular expense, I don't see it as savings so I don't dip into it, just keep topping it up until it is needed.
To work out how much you need, work out your larger spending categories, how much you need for each one, and divide each cost by how many paydays you have until you need it. So if you need £250 in 10 months time, you would put away £25 per month until you need it.
If you think this sounds complicated, the budget tracker available in my shop calculates these costs and does the hard work for you, as well as the other steps mentioned in how to budget.