Seeing as I am once again on an enforced sabbatical, I decided it might be good to use some of my financial experience to come up with some handy tips for you. What follows are only suggestions that I have found work for me. They may not work for you, but I hope they will. Figures are for illustrative purposes only. If you want any spreadsheet templates, let me know by leaving a comment; if you include your email address as you fill in (don’t put in the text of the comment!) then I, as web administrator can see this but no one else can.
I will assume that you get paid monthly. I always work with net income. So regardless of any deductions for tax, national insurance, pension contributions, student loans, etc. always think of your income as the cash you receive. For illustrative purposes, I will assume for the sake of argument that your net pay is £1,500 per month (about the average salary).
What I then do is siphon off some fixed amounts. These are for the regular, monthly payments that are known and fixed. For example, my rent is £750 per month and my council tax is £89 per month. I put that in a physically separate bank account. I do this for 2 reasons: 1) psychologically, it is no longer “spending money” and so I am not tempted to touch it; 2) A separate savings account typically has higher interest than a current account.
After this, I put aside an amount for regular payments that are not monthly and not fixed, but which can be reasonably estimated. My list includes water, gas, electricity, tv license. You may also have other things such as insurance in there. What I do with this is I have a spreadsheet where I input the dates the last bill ran from & to and the amount of the bill. For example, my last electricity bill was £73.60 and ran from 22 May to 22 August. From that, the spreadsheet works out what my average cost per day was (80p) and how long it has been since my last bill. What I then do is multiply the average daily cost by the time since the last bill to give an estimate of what the next bill will be if it were to arrive now. To be cautious, I always add about 5%. If you do this for all of these types of expenses, you can aside an amount each month, so that when the bill does arrive you already have the money ready and you can then start again.
What this does is it means I don’t really get nasty surprises when a bill comes through. It’s not perfect; I recently had to buy new glasses which I hadn’t set any money aside for, so that hurt a fair bit. But when I got my first gas bill for over 2 years, I already had the several hundred pounds needed easily to hand.
Once I’ve deducted my fixed and variable expenses, what is left is what I would deem to be my disposable income. What you do with this is very much a personal choice, though you might want to note that I didn’t take out an amount for food – I pay for this from my disposable income – you might want to do it differently. To help budget, I then divide this amount by the number of days left until the next payday (again, a spreadsheet template is easier than faffing about with a calendar and calculator).
If I set myself a target, then I can easily track if I am above or below that target as I go through the month. Typically, if I am over-spending then I just cut back and if I am under-spending then I transfer the excess into long term savings. Though at this time of year, I tend to put the excess into a fund for Christmas, so when it comes to December I have all the money I need for the family’s presents and for travel expenses.