Last week we looked at how your spending could be damaging your dreams, this week we explore what to consider when creating a budget.
What you need to consider when doing your budget
There are many things you need to consider when creating a budget. Firstly you need to accommodate for the unexpected, such as what you would do if you lost your job. Do you have enough savings? Typically financial experts advise to save six months worth of living expenses to cover us for such an event.
Other things to consider are the different types of insurance, pension plans, medical cover, car costs and car emergency fund for repairs. Below is a brief list of these things so you can do your research and get the necessary cover. Whilst you might not think all of these things necessary it is well worth seriously considering acquiring them as it could save you being in a precarious financial position in future.
- 6 month living costs emergency fund
- Joining a work union (monthly fee)
- Life / critical illness insurance
- Work, lost earnings insurance
- Medical cover
- Car savings and annual car expenses
The next stage is ascertaining your monthly expenses.
Assessing spending (current), incorporating paying off debt monthly
Now for the slightly scary bit – your monthly spending. Please see my downloadable spreadsheet for a comprehensive list of monthly outgoings – I’ve even input formulas so it does all the calculations for you! After this is done it will be clear how much you can save if you continue to spend as you are.
TIP: Work in £50 buffer to keep in your current account for the unexpected, this is very advantageous because having a certain amount of money in your account as a minimum will also boost your credit rating.
If you prefer to use a pen and paper that’s no problem, just download the spreadsheet and see what expense categories apply to you, drawing up your own budget from my template.
Stay tuned – next Monday we will be looking at how to realistically cut back on spending and how to begin drawing up a life goals budget.
Have you ever considered getting life insurance or saving for a six month living costs emergency fund? Do you think planning your finances in this way is beneficial? Please share your thoughts in the comments below to gain encouragement, insight and support from our community, we’d love to hear from you.
‘How to Manage Your Money When You Don’t Have Any’ by Mr Erik Wecks