It became apparent to me a few days ago that a person I was speaking to had little to no idea how to budget. And I was surprised. Very surprised. And this is because budgeting is actually the easiest thing in the world.
Here’s the theory. If you’re on a salary, or regular waged hours, then you have a fixed income. And that’s a good thing in budgeting theory, because you always know exactly how much you have to spend. The scheme is that every payday you take this amount and subtract your fixed costs. These will usually include accommodation, utilities and food. Everything left after you subtract the fixed costs from your fixed income is what they call “walking around money”. Simple, aeh?
How I manage my own budget and easily work out my walking around money is to run the old two-bank account scheme. In this scheme you have one bank account into which your income gets put. Then you have a second account that your fixed costs come out of. The trick is to have an autopayment that goes out of your “income account” and into your “costs account” on the same day as your pay. This means that your costs get yanked out of your spending money before you even see it.
Or put another way, everything in your account on payday is spending money!! Or… savings. But that’s another issue. Let’s just get out bills paid on time first of all.
The only problem with this scheme is that not all costs are actually fixed. The mortgage or rent is usually the same every week, but things like power and food bills vary from month to month. What I do then is to guess roughly how much the utilities will be, and get the autopayment to cover that amount, plus a little more. I do the same with food. After all, the costs account is only there as a holding account. If there’s heaps of excess money I can always recover it.
The only worry with this system is that I might draw more money out for say, a christmas food bill, than I have in the account. But really the question there is checking on how much is in the account just before the accommodation costs are drawn out, and making sure the rent is covered. For power bills, just check how much you spend in a particular calendar month and set aside a little more than that amount for the same month this year.
If you’re just plain bad with over-spending on food bills, or the power bill fluctuated wildly, then run three accounts. One for spending, one for accomodation, one for non-fixed costs. That way if the food and bills account is in trouble, you’ve still got a roof over your head.
The good news is that if you’re reading this site then you’re probably interested in making sure that you don’t wildly overspend…
As I say, this system has worked for me for years. Having the rent and bills removed early means I know exactly how much walking around money (read: pub money) I had. As long as I didn’t blow the whole lot on wine and loose women I could always chip a little more money into the costs account if it was running a little low. And likewise, if the costs account was consistently in credit at the end of the month I’d draw a little out as a reward!