Starting a budget can be easier said than done, especially if someone has multiple sources of income and many outgoings that can change each month. To many, controlling your finances can also be extremely time-consuming, being easily put-off until another rainy day. However, there are simple ways to achieve this and create a household budget that can not only be completed quickly but efficiently too. At Wizzcash, we believe everyone should have a clear idea of their finances to be able to control them and make better decisions if they choose to borrowmoney. If someone needs a short term loan in the event of a financial emergency, they’ll want to ensure they are able to afford the repayments. By starting and maintaining a budget, you’ll be able to put money aside and pay for an emergency without over-relying on taking out further credit. Here’s our short guide to managing it all.
Address Those Multiple Incomes
The first step for many is to know exactly what income is being generated, otherwise, there will be too much reliance on guesswork. Of course, depending on the type industry and for those that are self-employed, many may not be able to put an accurate figure on all of it, so it is a case of being as accurate as possible. One-way people that successfully budget achieve this is by utilising online budget calculators to thoroughly look at all avenues. There are a few available, such as on the Citizens Advice website, that are easy to use. Having to hand recent bank statements and payslips, means an accurate picture of what is going into an account will form for many people. In a household, considering a partner’s income into this also presents a clearer view of the household income, especially if they contribute to bills and outgoings or receive any benefits.
There are different approaches to managing multiple incomes, for example if your household has an income for both you and your partner that covers all expenses. One method some people try is the ‘jam-jar’ approach, where you divide your income into different pots for separate expenses. Now of course you can do this physically, but it is much safer to do this online then withdrawing all your money to put into jars or containers. Setting up separate bank accounts for each type of spending will help achieve this, for example, one for rent or mortgage and another for utility bills or car expenses. Then it’s case of dividing the money between those accounts, and if any money is left over, this can be put into an emergency savings fund. By separating multiple incomes into areas of expense, rather than just one account that everything pays into and expenses come out, it can actually help and mean you can control how much of your income streams are spent on certain things like groceries and so on, with a set amount put into a savings account each month.
Apps like Yolt can help you keep track of all these accounts in one place and you can set budget goals and track bills.Also Money Dashboard is another way to view multiple income sources and track spending without having to log in to various accounts.Of course, the more income sources you have, the more difficult it can be to track them, so using apps and budgeting methods that give you an overall view of your finances can make a huge difference and take the effort out of doing so.
At the end of the financial year in 2019, the median household disposable income was approximately £29,600 according to the Office for National Statistics (ONS). However, this has shown a weak growth rate in the past 2 years, with a fifth of UK adults suffering a 7% fall in this figure. Because of this “stall” in household disposable income, its increasingly important that people are aware of what they do have coming in. Those with income from passive sources, i.e. investments such as property, will want to check these figures too so that a picture can be formed of the last few months to look for consistency. If it is a rental income, for example, this figure should hopefully be consistent. Also, for those who are self-employed, knowing exactly how much income tax and national insurance you’ll pay this year is vital to accurately estimate disposable income. This can be done through Gov.UK with their simple to use income tax calculator.
Address All Essential Outgoings From Non-Essential
Once the sources of income become clear, whether it be from one job or many investments, the household outgoings can now be analysed. For many, this is where the real work begins to start an effective budget, as some tough decisions will need to be made. Utilising budget calculators are again very useful to help structure this, as it can be easy to forget certain things, especially regular outgoings that are not paid by direct debit or standing order, such as if someone prefers to pay cash for a regular service or buying fuel for a vehicle, for example. Also, outgoings will vary a lot from household to household if someone has children.On average, it costs £22.92 per day for a couple to raise a child from birth to the age of 18, the equivalent of £160.44 per week. This is higher for a single parent family also, totalling £28.16 per day (£197.12 per week) according to research carried out by the Money Charity.
Depending on the reasons for wanting to budget, such as a change of income, loss of a job or to increase savings, knowing how strict to be with reducing outgoings can be difficult. On the one hand all essential outgoings such as mortgage or rent, utility bills etc. will need to be included. The non-essential outgoings are where those who are successful budget pros find the reductions. Last year, the ONS Family Spending report found the average UK household budget was £2,538 per month, based on 2.4 people per household. Of this total, £585.60 was spent on average per week with 44% of this consisting of transportation, housing and recreation and culture. The rest is taken up by other outgoings, some of which constitutes areas that can be reduced. For example, 8.8% of the average household budget is spent on restaurants and hotels, working out to approximately £51.30 per week. Other notable areas include 7.8% on miscellaneous goods and services (£45.50 per week), 4.2% on clothing and footwear (£24.40 per week) and 2.2% on alcohol and tobacco (£13 per week). Once a full audit of outgoings has been complete, it can become simple to find the areas that need to be addressed.
Track Spending & Set Goals
Once areas of outgoings have been identified for reduction, tracking ongoing spend is where most people can maintain a successful budget. This is how an effective long-term budget can begin to show fruition. Most people will have a disposable income figure at this point that they want to maintain so that money can be put towards savings, for example, or paying off existing debt quicker. Whatever it is you are setting out to achieve, setting a goal is an ideal way to reach it. For those that have found that after their essential outgoings there is very little disposable income, this is where further advice may be worth considering. The Money Advice Service helps provide those who need it impartial financial advice, offering support when in financial difficulty. According to an analysis by the Centre for Economics and Business Research Consultancy, disposable income earned by UK households will be 17% lower in the second quarter of this year, in total having £43 billion less cash available for essential spending between April and June.
Working out a budget is extremely effective for people who can’t clearly see a way to increase their savings or disposable income. If done successfully and with all incomes accounted for, if you are fortunate to have more than one source, a few small changes to outgoings can make a huge difference in the long-term.
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