If money is on your mind in 2022, it’s likely that you’ve thought about making a budget for yourself – but is it a priority? Budgeting is one of those tools for healthy finances that might seem so simple that it falls to the bottom of your financial to-do list, but it’s the bread and butter of reaching your goals this year.
Whether you want to pay off debt, build an emergency fund, or invest your first money, it’ll be hard to make the steps you need without the groundwork of a solid budget.
What do I need to create a budget?
You can think of a budget like a framework that you use to understand how much money you have available to spend, save, and invest or put towards specific goals. It should cover your expected income, any monthly payments that you need to make (like rent), and voluntary things that you might be putting money towards (like a Spotify or Netflix subscription).
It's up to you to determine where your money is going – and this is where a budget can be the perfect tool to set you up for financial success!
Before you create your first budget, it’s worth getting an idea of what your monthly (or even weekly) spending looks like right now so that you can be realistic about what your budget for each area of your life should be. There’s no point in setting aside £20 for groceries a week if you know that you’ll need far more to buy food.
Some banks provide breakdowns of your monthly spending, but you can always try collecting your bank statements in a good old-fashioned spreadsheet. Knowledge is power, and getting a little self-knowledge about your spending habits will help you be realistic about where you like to put your money (and where there might be room to improve 👀).
The 50/30/20 Rule
One popular budget framework is the 50/30/20 rule. This rule suggests that you try and budget your money along these rough percentages:
50% goes towards essential needs (rent, bills, groceries, etc.)
30% goes towards spending that you choose (subscriptions, shopping, date nights, etc.)
20% goes towards savings or debt
The key to this rule is that it’s just a framework, and you’ll probably want to adapt it to your own needs and situation. If you have debt with interest that’s mounting fast, you might want to reduce your discretionary spending so that you can pay it off more quickly.
Alternatively, if you live in a city where rent is very high (hello London!), your money towards essentials from your paycheck might take up a bigger cut. The 50/30/20 rule is just a starting point for you to work from, and can help budgeting seem a little less intimidating – but there’s nothing wrong with shaking it up so that it works for you!
Okay, but how do I keep the habit going?
One of the best things you can do for your monthly budget is to revisit it regularly. If you set a budget for this January but find yourself struggling to make next month’s rent, that doesn’t mean a budget isn’t for you! Go back to the drawing board and work out why your budget isn’t holding, and make changes that reflect your lifestyle and needs.
Try setting aside 30 minutes in the next week to budget. You can come along to one of our money dates on a Monday morning and use the time to try setting your budget.