Normally you would probably complete a budget in January, but maybe you didn’t have the time or just didn’t bother, and now with rising energy costs and general inflation really starting to bite, bills are getting harder to pay and you’re just finding it more difficult to make ends meet. Well help is here and there is never a bad time to start thinking of budgets and all things to do with improving your personal finances. Read on for some key advice from John Lowe of Moneydoctors.ie as well as from local financial experts
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Money management made simple
‘Money management’ sounds complicated but actually it comes down to:
• keeping track of all the money you receive
• keeping track of all the money you spend or give away
• making sure your money is somewhere safe where it can’t be stolen
• paying your bills, including (argh!) your tax bill
• checking that you aren’t spending too much
• planning for the future
•deciding how you will use your money.
There are no absolute rights and wrongs when it comes to money management, but there are sensible and less sensible things to do. For instance, if you want to make the most of your money, it is sensible to:
• keep money records, basically notes of what you earn (or get given) and what you spend (or give away)
• open a bank account
• make sure that you don’t spend more than you receive
• keep bank charges down to a minimum
• keep your tax bill down to a minimum.
Plan your spending
A seemingly wise man once declared that in his experience a budget was nothing more than a mathematical confirmation of one’s suspicions.
Ogden Nash, one of America’s best known producer of humorous poetry on the same subject, said he was resigned to the fact that: ‘The further through life I drift, the more obvious it becomes that I am lacking in thrift.’
Please cast aside any similar prejudices you may harbour. Budgeting is an invaluable part of making the most of one’s money and has nothing to do with self-denial or thrift, because all it involves is:
• working out how much money you have
• deciding how you are going to use it
It makes any financial problems you have much easier to identify and solve.
Furthermore, whatever state your finances are in, it will make you feel much better.
Because, to risk another quote, as Jerry Gillies (an American author) said: ‘Confront your fears, list them, get to know them, and only then will you be able to put them aside and move ahead.’
Budgeting in a nutshell
It is fatal, in any endeavour, to make decisions without being in full possession of all the relevant facts. The three steps to preparing a budget are:
1. Choose a period you want to cover (a year is probably the most logical).
2. Add up all your income for that period and note when it will be coming in.
3. Calculate all your expenditure over that period.
Once you have done this, you may decide to make some changes to your finances that could involve some or all of the following:
• spending less
• spending differently or prioritising • earning more
• borrowing
• saving and investing.
Making any financial decision without knowing your current position is a bit like ‘ready, fire, aim’, if you follow me. You’re getting things in the wrong order. You might also think of the two important questions to ask yourself on your annual expenditure . . .
• do I need it?
• Is there a better or cheaper alternative?
Think monthly
For most people it makes sense to budget monthly. This means taking any big, one-off expenses, such as insurance or house repairs or buying a new car or ... oh, you get the idea, and working them into your monthly budget. The most logical way to deal with these big, one-off expenses is:
• Where possible, negotiate to pay them monthly (providing this isn’t going to cost you extra) or use your savings or (if unavoidable) take out an inexpensive loan.
• Otherwise, open a separate bank account (your budget account) just to pay for these expenses and put money into it regularly.
How much money should you put into your special budget account? Add up all the big, one- off expenses, divide by 12 and Bob’s your uncle.
Of course, in the first year you may find that this isn’t enough since the big bills may all come close together. But by year two you should be laughing.
Incidentally, you should allow for your big, one-off expenses in your monthly budget even if you pay them at other times.
Gather together information about renewal dates for insurance and annual subscriptions so that they don’t come as a surprise each year. e.g. the TV licence is € 160 per annum, or €13.33 monthly.
Use your bank statements
Your bank and credit card statements for the last few months will be a great help in the whole budget process as they will show you how much cash you spend, what your standing orders are and so forth.
If you haven’t kept them, you may be able to access them online.
Otherwise, you will have to ask your bank to send you copies.
Don’t double count
Be careful not to double count items. For instance, if you buy food with cash, don’t count the amount twice when checking your statements. Another thing, don’t count any pension contribution taken direct from your salary.
Credit and store cards
Check your credit card and store card statements to see what you spend each month using them as opposed to cash or your bank debit cards.
Be realistic
Don’t underestimate your spending. Better to put down too much and find yourself better off than the other way around.
This is part one of a two part special feature on personal finance. Read part two here.
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