The roadmap out of lockdown has been presented and things are looking brighter for the future ahead. The Coronavirus pandemic taught us that life can change quickly and these changes have impacted the lives of everyone across the globe and will continue to do so during the slow process of lifting government restrictions. As life begins to get back to a sense of normality, your expenditures will inevitably change as offices, businesses and hospitality destinations open and restart trading. It’s now a good time to evaluate your finances to ensure you’re ready for the transition back into life outside of lockdown and social restrictions. Creating a financial budget is a great way to keep abreast of your finances and stave off debt and overspending as bars, restaurants and In this blog, we explore how to create a financial budget and set financial goals that are achievable for you.
How to Create a Financial Budget
1. Understand Your Finances
In order to set goals, you need to create and understand your financial budget so you are aware of how and where you are spending your money and how much you can afford to invest or save.
Compile your finances by gathering information from your accounts and income. The goal is to build a picture of your monthly averages for your income and expenditures. You can look to gather information such as:
- Bank statements
- Investment accounts
- Recent utility bills
- Credit card bills
- Auto loan statements
- Insurance statements
- Receipts for cash payments
2. Calculate your average monthly income
It’s important to understand how much income you receive each month as an average taken over 12 months, particularly if you have a business, zero-hours contract or a freelance job where your income can fluctuate from month to month.
If you have a seasonal career, it may be wise to use the income from your lowest-earning month, rather than taking an overall average.
Remember to include any additional sources of income, such as child support or shares and investment payouts to create a single, total figure of all your monthly income.
2. Compile a list of monthly expenses
Use the information gathered to compile a list of expenses over the last three months. Expenses are more than just bills, so remember to set a budget for aspects such as entertainment, personal care and gifts for birthdays and seasonal celebrations alongside obvious outgoings such as mortgage or rent payments and travel expenses.
Review your last two or three months of credit card or bank transactions to make a rough estimate of how much budget you need for the financial category on an average month, which could include:
- Mortgage Payments or rent
- Entertainment (gym passes, Netflix)
- Social Events
- Personal Care
- Transportation costs / car payments, fuel & repair
- Student Loans
It’s important to include a contingency for unexpected payments and if in doubt, always round up payments rather than down, to ensure your budget isn’t too tight.
4. Compare your monthly income to your monthly expenses
By comparing your two monthly totals, you can easily see your total monthly expenses and how they compare to your income. Ideally, your income should be higher than your monthly expenses.
Keep a track of your expenses every month, this will help you identify any problematic habits and unnecessary spending to help you reach your financial goals.
How to Set Financial Goals
Now that you have your financial budget, you can look at setting yourself realistic and attainable goals for your finances, based on the outcome of the budgeting process. Financial goals and the success of achieving those goals is underpinned by your understanding of your financial budget and how you approach your finances.
If your expenses are less than your income
You’re already off to a great start, these funds can be used to put into savings, a private pension, investments and ISAs to help you save for a rainy day, an investment property or a trip of a lifetime.
If you have any debts, use this income to pay off any outstanding debts such as overdrafts, loans and credit cards. Focus on paying off the accounts with the highest interest rates to make your money work for you.
If your expenses are more than your income
Use the financial budget to take a look at areas where you might be overspending, and make necessary changes to get your finances back on track. Be realistic, make small changes to your habits to help encourage saving money, and set yourself short term goals to stay motivated in changing your finances. Whenever you spend money, ask - do I really need this? Look to your variable expenses for ways to reduce spending, such as sharing subscription services with friends and family and eating out less. You can also look to find new ways to generate income to balance your budget.
Don’t be daunted, reduce your fixed variable spending where possible and aim for a balance between your income and expenses as a first step.
Ask questions - "am I entitled to government support?"
You may be entitled to additional financial help. There are various ways the government and the local councils offer financial support, especially in helping citizens recover from the financial impact of the Coronavirus pandemic, but the onus is on the claimant to ensure that they have access to any income support or financial aid available.
The best way to check if you are entitled to any extra income through these initiatives is to check if you’re entitled to any income support, visit https://www.gov.uk/income-support. If you don’t ask, you’ll never know, so it’s always worth checking if you’re entitled to any government assistance.
How to Find Lost Money For Free
With changing circumstances and jobs, customers can sometimes lose track of assets, pensions and accounts. In a new study conducted by Gretal, research found that
“19.6m adults in the UK have become disconnected with their assets in financial services products, leaving a collective value of more than £50bn across dormant or unclaimed funds.”
This is a staggering figure and equates to 22% of the adult population of the UK, so there’s never a better time to discover if you have any lost funds or unclaimed accounts with monies owed to you.
If you think you may have misplaced an account, left shares dormant or even forgotten about a pension, Vestigium can help you find and reclaim your lost funds. Similarly, Vestigium can help uncover financial services products that your parents, grandparents, or other relatives may have held that you are unaware of but entitled to.