1. Construct A Budget – The 12 Tips Of Christmas

The 12 Tips Of Christmas – All 12 Tips Of Christmas Posts

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Merry Christmas and welcome to the first post of my 12 Tips Of Christmas series.

These are a series of posts that will be going out on the lead up to Christmas and the New Year to help guide you towards a better money mindset with an aim to give you a base knowledge of personal finance.

So making a budget. This is probably the hardest ‘hump’ to get over as it’ll often be the first step on getting your finances in order.

In order to know what our first actionable steps are going to be going forward (paying down debt, building an emergency fund, saving a deposit etc.), we need to understand how much we have coming in, and where our money is going out.

It might seem daunting at first and seem like a lot of work. And it might be, but once we’ve traversed this first big hurdle, everything becomes at least a little more clear from here on out.

Start Simple

Start by opening up your banking app and looking back over the last full day of expenses and income. Make a note of any bills and purchases made either in an Excel spreadsheet or simply by writing it down on a piece of paper.

To make this even easier, you could use one of the many brilliant budgeting apps out there.

Once you’ve done that first full day, move to the next day. Keep doing this until you’ve built up a weekly picture of your incomings and outgoings.

Continue the process until you’ve completed a full month and stop there. That’s it.

You should by now have a full month of incomings and outgoings. Getting a full months picture of your finances means we can get a pretty good picture of almost every bill and expense you’ll need to account for. There are exceptions but this should at least give us a great starting point.

Your aim now is to tally up those outgoings and compare them to your income. You ideally want the outgoings to be less than the income and leave you with something leftover.

I know this isn’t always the case. So let’s sift through those outgoings and dig into the details of where that money is actually going.

Set aside the important, regular bills (for now). These include non-negotiables like council tax and rent. This also includes gas, electricity and water, phone, TV and broadband bills as well as debt commitments.

Food and Drink

Now let’s look at food and drink. How much are you spending on essential groceries? How much food are you getting for the outgoings and for the amount of people in your household? Are there any expenses going out like regular coffee shop trips, takeaways or eating out as well as having a high grocery spend?

Groceries are where we can get more bang for our buck. Ideally we don’t want dining out or takeaways to be bigger than our grocery spend. Could this be an area you can save a little to allocate elsewhere in the budget?

Also, are you buying more premium brands when basics will do? Are you only shopping in the more expensive supermarkets because that’s just what you’ve always done? Why not try Aldi or Lidl?

Don’t be suckered in with a loyalty card…it’s all a marketing ploy. Why do you think the vouchers for money off are only ever for things you sometimes buy, but never the things you buy the most? You rarely, if ever, see vouchers for bread, milk or fresh fruit and veg do you…?

Other Spends

Now we look at other discretionary spends. How much is going out on clothing, electronics, homeware etc.? Is any of this spend taking us further into the red when you’re not really getting much use out of it? Are you just buying this because it’s new and shiny or do you genuinely need it?

This also includes trips out and gym subscriptions. Is there a gym near you that’s cheaper on a rolling contract so you’re not tied into 12 months of regular financial commitments? Do you only go to the gym for CV? Could you do this cheaper simply by running or cycling outside? Once you’ve paid for the bike and helmet or running shoes, the rest is pretty much free.

Acknowledging Debt

Now the big one: debt.

Within your budget, find out how much is going towards debt and how many entities you owe money to.

Just like the non-negotiables, set them aside into their own column and find out the interest charged on each one.

Depending on your circumstances there may be some wiggle room in being able to negotiate monthly payments to each creditor. Call them and find out. Ask questions. Can you reduce all but the highest interest repayment right down to focus on the most expensive debt first? Or is there one that’s small enough to get rid of in a few months just so you can tick it off the list?

The important thing to remember is you are not alone. There are many fantastic bodies out there open to helping people manage debt and get rid of it once and for all. Citizen’s Advice, StepChange and Nation Debt Helpline and just three of many services out there.

Big Ticket Bills

Finally, look at the big ticket items: phone, TV, broadband and insurance.

These are often fixed expenses month on month, but negotiable when the contract comes up for renewal. Are you really getting the most out of your Sky subscription? Could Netflix and Freeview do for now? Are you shopping around for the best insurance rate? Don’t just accept the first renewal quote. Ring them. Again, ask questions….”Why has my quote gone up when I now have an extra years no claims?” “What if I add my parents as second name drivers?” Make sure you’re not quoting more miles than you actually do over a year. Do the same with your broadband. Are there any introductory deals with smaller providers? Just make sure you’ve read their reviews first.

Remember, contracts are easy to sign, but very difficult to get out of. 12 months is a long time; you’ll be committed to the full term.

Moving Forward

Once you’ve discovered where your money is going, you want to now make plans for it now and in the future.

How much of this money do you want going towards your goals or luxury expenses? How much are you willing to allocate to bills and can you afford to forego them if the cost is just too much (if they’re not necessary)?

Hopefully you’re starting to see the bigger picture of where your money is going each month and areas you might be able to cut down on to free up money for what we’ll discuss in the next few posts of The 12 Tips Of Christmas.

When starting out, it’s important to know where every penny is going and that you’re questioning every bill that’s going out.

Any small change we make now can help us in the long term if implemented regularly and consistently. Starting a budget is the first step on the marathon journey of a better financial future.

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