How to budget like a pro

If you’re committed to getting your finances in order in 2022, a monthly budget that tracks income and expenses is essential.

a smart personal budget will help identify bad spending habits, plan for unexpected expenses like birthdays, and monitor savings progress. When followed long-term, it will sharpen financial discipline and provide peace of mind.

Studies show that we’re more likely to achieve our goals — financial or otherwise — when we write them down. But how exactly do you write a family budget that maximizes money? And how do you make sure you stick to it when the temptation comes?

We asked three financial experts for their time-tested budgeting tips.

Analyze your expenses

Although we all have a rough idea of ​​how much we spend each month, forensic analysis of bank statements will often tell a very different story. “Budgeting starts with recognition and awareness, so we always advise our clients to analyze their bank statements over a six-month period, not including the Christmas period,” says Paul Merriman, CEO of AskPaul and Pax. Financial.

“You might think you’re spending a certain amount on coffee, for example, but when you analyze your statement, you may find that you’re spending a lot less or a lot more.”

be honest with you

Analyzing bank statements can be a sobering experience, especially when it comes to calculating the monthly cost of vices such as smoking, drinking and gambling. It can be a judgment call, agrees John Lowe of Money Doctors, but it’s important to be honest. “There’s no point in being wrong because, at the end of the day, no one is looking at these numbers but yourself.”

Limit unnecessary expenses

The next step is to figure out monthly expenses that can be reduced or eliminated, says Merriman. “Ask yourself, is it adding value? If it doesn’t add value, get rid of it. If it adds value, can you get it at a more competitive price? »

It’s important to take a long-term view when looking at your spending, he adds. “When I tell customers that they could save €100 per month by switching service providers, they often tell me that it’s not worth it. However, when I reframe it and tell them they could save $12,000 over 10 years or $36,000 over 30 years, they’re much more likely to buy in. »

Manage recurring subscriptions

After combing through your financial statements, you’ll no doubt discover recurring subscriptions that cost less than $5 per month. These subscriptions are designed to make life easier, but they’re also designed to be deliberately hard to cancel.

“If you don’t use it, cancel it – even if you mind,” says Merriman, who points out that some of his customers aren’t even aware of the subscriptions they pay for each month. “I went through a client’s bank statements recently and could see that he was paying for pet insurance. Turns out her pet died six years ago.

Establish a monetary ratio

Tracking a personal finance ratio will help you stay on track each month. Lorraine Donegan of Donegan Financial Services recommends the 50/30/20 rule, which is 50 pc for your needs (mortgage, household bills, food, etc.); 30pc for needs (purchases of clothes, restaurants, vacations, etc.) and 20pc for savings, including pension.

Mr. Merriman prefers to divide the money he has left after covering the necessities into three thirds. “One-third goes into lifestyle, one-third goes into an emergency fund, and the other third goes into a small investment that you build up slowly over time. It’s about getting into a cycle where your money works for you rather than you work for your money, but it takes time and patience.

Set goals (and reward yourself along the way)

Budgeting will help build financial discipline, but it’s much easier to stay motivated and resist the temptations to spend when you have a goal in mind. “It’s very difficult to stay on a financial path without setting goals,” says Merriman. “You have to work on something, whether it’s six months from now or 10 years from now.”

Once you reach a savings goal, it’s important to reward yourself, he adds. “Treat yourself to a vacation, or a purse or whatever, then leave. Psychologically, you can’t work towards a goal with nothing in between.

Try digital banking

Budget tracking is easier with digital banks like Revolut and N26, Ms. Donegan says. “People want more visual budget plans these days and I just don’t have time to download statements and sift through transactions, let alone visit the bank,” she says.

“Digital banking apps automatically categorize payments so you can see your past spending habits alongside logos of places like Costa Coffee, McDonald’s, etc. This makes it easier to monitor spending and save for goals. short term.”

Make financial planning a family affair

Budgets work best when everyone is in agreement. If you’re planning a household budget for a family, make it collaborative and transparent, Merriman says. “We have met many clients in financial difficulty where a partner is not even aware of what is going on. They say things like “my wife takes care of the finances” or “my husband takes care of that”. It’s crazy, in my eyes. If your name is on a document, you need to know what happens to your money.

Household budgets can also help teach children about financial literacy, Donegan says. “If you teach them from an early age to physically store money, hopefully for years to come it will remain a habit.”

Experiment with different techniques and applications

If all that sounds like too much hard work, try downloading a simplified app or spreadsheet that tracks spending by category and sends alerts when you go over budget. Money Doctors has a free summary budget worksheet (email to request one).

If you’ve given up on household budgets in the past, or are looking for something even easier to track, try the envelope system. At the start of each month, you put money into different envelopes based on budget categories – think “restaurants and takeaways”, “cafes”, “beauty and clothes” – and only spend what is available. in the envelopes.

The hands-on strategy prevents overspending, partly because each category is carefully budgeted and partly because parting with money is psychologically more painful.

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