No matter how much you earn, stressing about money can wreak havoc on your mental wellbeing. With 25% of Brits at financial risk, it’s never been more important to manage your financial health and start budgeting.
Why is it important to budget?
Especially in uncertain times, budgeting correctly is crucial so that you can save and prepare for the unexpected. With the unemployment rate sitting at 4.8%, budgeting is crucial to ensure you are spending sensibly, with enough contingency to cover job losses.
Not only will budgeting help you save for a rainy day, but it will also help you see where you’ve been overspending so you can make necessary lifestyle changes next month.
How to budget
So you’ve established how important budgeting is, but how do you actually do it?
Well, to become a dab hand at budgeting, firstly set yourself a weekly and monthly budget to ensure your spending is on track.
When coming up with your budget, you may want to follow the 50-30-20 rule. This rule states that 50% of your income should be spent on your needs or obligations (such as rent, bills or food). The remaining half should be split between savings and debt repayments (20%), and anything else you wish to buy or do (30%).
Then, once you’ve set your budget – stick to it!
Recognise your needs and wants
Once you’ve decided on your budget, think hard about your wants and needs. Sometimes the line can get blurry between the two, so it can be important to step back and think objectively about what is classified as a want versus a need.
Needs are those things that you need to survive such as food, clothing (basics, rather than designer shoes!), transportation and shelter. Wants are those things that you may desire but don’t really need. For example, you may need a car to take the children to school. However, buying a brand-new car isn’t necessarily a ‘need’ when a more affordable alternative would do just fine.
Start saving as early as possible
Although it may be tempting to splash out on luxuries, instead it’s much better to start saving for retirement early. The sooner you start to save, the more you will get used to putting a proportion of your income into savings, and the more time you will have to save for your retirement years.
Be conscious about spending
Finally, to truly be on top of your financial health, it’s important to be conscious about spending. Although you may be tempted to keep up with the Joneses, you should think twice about frivolous spending.
For example, you should always use a credit card appropriately and only buy what you can afford. By doing this and paying off what you owe in full every month, you can also improve your credit rating at the same time.
The bottom line…
Luckily, getting your financial health in check is easier than you think. From budgeting property and saving for the future, through to using a credit card responsibly – you can be well on your way to achieving financial freedom by following these simple tips.