Money Matters - April/May 22
Money On My Mind – The Martin Lewis Column
He’s the UK’s leading money saving expert - a journalist and presenter who has kept millions of pounds in people’s pockets as well as lifting the lid on the threats and dangers we need to be aware of as consumers.
In this month’s column, Martin Lewis looks at budgeting.
Here’s an uncomfortable fact for you - many people are appalling ‘budgeters’. We all know what we earn, but we don’t know what we spend, and you cannot balance the see-sawing budget without being clear on both.
The biggest problem that people have is they look across the month at what they typically pay for things. So, they’ll look at their food bills, their utilities, their mortgage, car lease and all those things, and that’s all good and well. But you know what, the average family in the UK spends £600 on Christmas, which is £50 a month. They buy a new sofa every three or four years for maybe £1,000. They buy a television that is £300. They go on holiday, and so on.
The fact is, rarely are these costs factored into monthly spend, but they should be. We need to break down those big amounts into a monthly cost, across the whole year, and add that to our monthly figures. I have a tool called the ‘Budget Planner’ which is free to use on my website – www.moneysavingexpert.com.
Ultimately, the way I suggest people manage their money is by using a system I call ‘Piggybanking’. It involves moving things into hypothetical ‘accounts’. So, let’s say you have your ‘Standard Bills’ account, which is all the regular bills you need to pay each month; you have your ‘Holidays’ account - you know you spend £1,000 a year on a holiday and that’s about £85 a month. You have your ‘Christmas’ account and you have your ‘Big One-Offs’ account. Those are examples but use whatever is personal to you.
Each month when you get paid, you siphon the right amount of money into the Bills account, you put the right amount of money into the Holidays account, the right amount of money into the Christmas account, and so on.
So your Holidays account will categorically confirm to you that you have, say, £512 to spend. If you’re spending more, you cannot afford it, so you have to cut your cloth accordingly.
Many people swear by this technique, lots of people swear at it too, but it truly works!
In the current climate, we can’t compensate for what’s around the corner, but being equipped to confront it will make you feel good about your finances, your life, and your prospects of overcoming that financial bump in the road.