Budgeting for your future
Written by Emma Burbidge Posted in Career Planning, Financial Planning, Careers
Why should you budget?
Whether you are living with parents or in your own housing, it is important to learn how to budget in order to keep on top of finances. It is one thing that all adults must learn to do, some of you may already be doing it. It is particularly important if you already have to look after someone else, such as a baby.
If there was no budgeting in this world, then people would spend, spend, spend, with no thought for how much they were actually spending and whether or not they could afford to spend this amount.
Although there are some billionaires out there, most of us mere mortals have to constantly budget just to make ends meet.
Through advertising we are constantly being told to spend money, particularly at this time of year, when we tend to spend more on presents for our friends and relatives, food and socialising.
However, it is important to keep track of spending, and not spend above our means; otherwise we can rack up serious debts which can lead to poverty, depression and feelings of insecurity.
Also, if you start spending a lot below your means, then you will be able to save. You can put the money you save into a savings account. Savings accounts usually have higher interest rates than current accounts (accounts that you will use for everyday shopping, and where your salary will be put into), but sometimes these accounts demand that you save for months or even years before you can access your money again. This is a good thing as it keeps you saving, and eventually the money you save will accrue some interest (a reward if you like for keeping it there) and can be put towards something special, such as a holiday, or continuing your education.
How to budget
In order to spend within or below your means, you have to first make an assessment of what your means are. By this we mean your income, of course.
If you are not living with parents – how are you going to live? In some circumstances, you may be eligible for some state benefits such as income support and access to work if you have a disability. You may also receive some money to support you with living costs if you are going back to study.
However, whether you are earning or learning, you will not be in a position to fritter money away on clothes, so make sure you aren’t drawn in by the latest trainers or that nice bag you see in the shop window. If you think you might be tempted then it is best to avoid clothes shops altogether, unless there is something you really need.
For 16 to 17 year olds in the UK, the minimum wage is £3.68. This is the minimum amount of money that an employer may pay you for the work that you do and would be a typical wage for jobs such as pot washing or assisting customers in a shop. For apprentices, this is £2.65 as you are training while working.
Usually, you will get paid weekly or monthly. £3.68 an hour calculates as £147.20 a week (assuming you work full time at 40 hours a week) or £588.80 a month. If you go and buy an iPad at around £200 then this is nearly half of your monthly wage, and could mean that you don’t have enough to pay for rent, bills etc for the month. So if you want that iPad, you are going to have to save for months to get it. If you really want it, then it will be worth it, but if you buy it as an impulse purchase, then you are going to end up struggling with the money you have left for that month and you could end up in debt.
Now that you have your income calculated you need to work out how much you spend each month. In other words, what is your expenditure?
Calculate the cost of rent, bills, transport costs, food, going out, clothes and entertainment (books, CDs, DVDs etc). You will be surprised at how this can all add up, especially if you have a child to support!
Then take this away from the cost of your income, and you have what is called your expendable income. This is money you can save towards something special. If your expenditure is more than your income, then you are in debt.
Sometimes banks have an overdraft facility which allows you to spend money you don’t have, however you can be severely penalised if you go over a certain amount on your overdraft, so this is not to be recommended if you are on a low income.
If you are persistently spending more than your income then you are going to go into debt.
Keeping costs down
In this case, you will look at the list of things you spend money on again and decide, what do I buy that I don’t need? Do I need to buy CDs/DVDs etc? Do I need to spend that much on clothes? Your expenditure can be lowered just by not buying non-essential items. Of course it’s good to go to the cinema occasionally, but if you go every night you will not have any money left, so before you make arrangements with your friends every evening think about whether you can afford it, or look for things to do in your area that are free.
Next, look at ways to reduce food costs, transport costs and bills/rent etc. If you share housing with other people then your rent costs are usually reduced. Also, you can reduce bills by not wasting water (put your washing machine on eco-save and have showers instead of baths), by having fewer electrical items in your home, not having the heating on in the summer and not leaving it on when you are out. Transport costs can be reduced by walking or cycling as much as possible. Although the cost of food and vegetables have been steadily rising, it is still usually cheaper to cook meals than to buy them ready made. For example, a bag of mince can go a long way; last week I used it to cook 3 meals, spaghetti Bolognese, Chilli con carne and Shepherd’s Pie!
Although we can’t help you with cooking recipes (that’s Jamie Oliver’s domain), we can help you with financial planning so feel free to call one of our advisers at TCHC any time. I hope you follow my advice and begin to reduce your costs – best of luck!