Sunday, 31 January 2010

How I budget

I have been asked how I budget so thought I would share how I deal with my money. I cant actually remember where I got the idea from (it was from a website called Frugal Moms a long time ago but actually came from an American book - one of Mary Hunts I think but don't quote me - anyway I adapted it to suit myself and this is my version)

I call it my Freedom account and have been running it this way since December 2003 when I became debt free. I get paid monthly so everything is monthly and I do this on the 1st of each month.

First thing I did was add up everything that had to be paid in a month (ie mortgage/gas/electricity/council tax/groceries/insurances/my & oh allowance/bus fares/daughters dinner money etc - its different for everyone - could include bank loans, debts, hire purchase all sorts of different things - but it must be the things you HAVE to pay every month.

This amount gets left in my cheque account.

What's left I put into my Freedom account - (a separate savings account but I write everything down in a book as its for different things)

S0, my Freedom account consists of 14 difference accounts. The first 6 accounts I always put money away in every month - they are

Road tax
Car insurance
Telly licence

(basically divide what these cost in a year in 12 and put that amount in each one)

Once these accounts are funded I divide up what's left and put that into these accounts

Household (including decorating)
Car repairs

So I know that a) - I wont have any surprises (how many people are amazed when there car tax is due!) and b) if I want something and there's not enough money in that account (ie paint for the hall) I know I have to wait until next month so that way I (ahem!) don't overspend. I have been a bit blasé about this as if I want something I can take it from another account but am trying not to do this as it just encourages more spending! - did have to do it this month as we got a £300+ bill in for car repairs and I had to take some from my Emergency account - this is a buffer account for such things.

My book is an A5 binder - the kind you put put paper in and on each accounts page I divide it into 5 columns like below. So tomorrow say on my Road Tax page it will read -

Date Reason In Out Balance
1/2/01 Monthly payment £16 £0 £112

When I first started doing my money this way is was really hard - I couldn't fund each of my accounts and some only got 50p! Gradually it got better - I think it really take a full year to get comfortable with it but now as its second nature its so easy to run - that's why its called a Freedom account - you don't have to worry about how to pay things that crop up as you have already budgeted for it and the money should be there.

Obviously its not fool proof - things in life crop up and you have to keep an eye on your spending to make sure you don't go over the money you have in your account but it works for me.

And you can change it to suit different times - I got a better job once my last 7 accounts were up and running I realised that there was extra money and started putting the excess away in a savings account - again, a buffer for emergency's but I really try not to touch this at all as I want it for real emergencies.

So tomorrow is what I call banking day - I get my bank statement for the month, any receipts I keep and my diary (I try to write down things every day). I write down all my spending in my Freedom account and balance it - then put down this months payments in. Then I check my bank balance and transfer what I need from the cheque accounts to the savings account where I keep all my Freedom account money.

When I first set it up I wouldn't buy anything at all until I had checked my Freedom account to see if I had the money - now I am better with money I tend to just add it up at the end of the month and balance it but I have noticed that my spending has been creeping up and need to be more aware of my balances.

It probably sounds more complicated than it is but as I said before it works for me...

Jan grocery spend - £248 (and £16.04 to come off Febs!)
Holiday fund - £50
My allowance - £50.00 (and £15 to come off Febs!)
Household spend - £92.64

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