A good budget needs to cover all of your planned spending, help you prepare for unexpected costs, and be simple enough to actually stick with it.
It’s that last point that can sometimes be the trickiest. While there are all kinds of detailed spreadsheets and clever bits of software out there, the task of inputting all of the information and keeping on top of the various numbers it shows you isn’t for everyone, and causes many people to give up on budgeting too soon.
How about a simple alternative, then? One option that we love is using savings pots to separate your money. This tactic springs from a budgeting technique known as ‘give every penny a job’. It still requires a little but of effort at the start, but once you’re up and running, you’ll be managing your budget from inside your bank account. This makes things a lot simpler. It’s also a great tool for those who easily lose track of what they’re spending, as you’ll be able to see exactly how much you have set aside for different types of purchase.
Getting started
As with any type of budgeting, the hard work is at the start. This is where you’ll need to review your outgoings, categorising different types of monthly spending and assigning them a value. For instance, £15 on subscriptions, £50 on transport costs, £30 for takeaways and so on. If the monthly categories are adding up to more than you can afford, look for areas to trim.
Include bills and food, as well as those expenses that come around less frequently. For instance, if you spend £250 on Christmas shopping, this can be put down as roughly £20 a month. Similarly, you might want to assign a monthly cost to things like new coats or shoes, vehicle maintenance or tech upgrades. The idea is that every part of your income is given a role – either for bills/food, savings or one of the new categories that you’ve created.
Creating your savings pot
If you wanted to, you could manage these categories as lines on a spreadsheet – but we say make things easy for yourself and do it with savings pots. Challenger banks like Monzo let you open various pots specifically for this purpose. Even if you’re with a more traditional bank, you can do it by opening a number of basic savings accounts, which will show in the banking app linked to your main account.
Each account should be labelled based on the job that you have assigned for that pot of money. These can be general categories, such as ‘clothes’, or more specific (‘coat’, ‘jumpers’, etc.) depending on how detailed you want to be.
On payday, sort your money into your pots based on the amounts that you determined when first looking through your budget. Once the money has been divided up, simply transfer what you need back into your main account when you want to make a related purchase.
Always be flexible
You should try and stick to your budget if you can – but remember that it’s a set of guidelines that you’ve created for yourself. Sometimes situations change, and it’s okay to be flexible. For instance, if you find yourself with an unexpected bill, you can always transfer money out of some of the less essential accounts to cover it. On the other hand, you may decide to reduce spending in one area in order to buy yourself a particular treat. Flexibility where you need it is the key to keeping any budget manageable.