Rosie Hooper, a chartered financial planner at Quilter, puts it succinctly: “You can’t manage what you can’t measure. If you do not have a budget in place, then you won’t know if you are spending too much or too little.” While budgeting is often associated with trying to spend less, Hooper points out this isn’t always the case. “Many people actually underestimate the amount of money they have to spend. While that is perhaps not such a bad thing as it means you are not spending beyond your means, it can also mean that you are being unnecessarily stringent and are depriving yourself of things you could reasonably afford if you wish to.” If the pandemic has shown us anything it’s that things are more uncertain than ever. “Being prepared (as far as you can) for the unknown is a big plus,” Emma-Lou Montgomery, associate director at Fidelity International, pointed out. “Having a set budget means that you can be prepared for any changes to your finances."
“The more realistic the budget, the more likely you are to stick to it,” Hooper reminds us. The best way to do this is to go over your last three months’ worth of bank statements. If you have a standard salary your ingoings are quite simple, if you are self-employed or freelance it’s best to look at a whole year and work out your average monthly income. For outgoings, make a list of all regular payments (bill, subscriptions, and so forth) as well as the amount you spent in terms of spending money. From these two figures, you will get a good idea of what you’re currently earning and spending and this will give you an idea moving forward of a realistic budget.
Of course, a budget shouldn’t be set in stone. “It is a good idea to review your budget regularly and tweak it where necessary — every three months is a good place to start,” Hooper suggested. Remember, don’t be too hard on yourself. “If you overspend, don’t lose faith in what you are trying to achieve. Your relationship with your money is a lifelong commitment and it will have its ups and downs. You’re learning as you go along and if you enjoy the odd overspend or budget overreach, stay calm, reassess what’s needed to recoup, and cut yourself some slack. With budgeting, it’s as much about following the rules as it is about learning from mistakes,” Montgomery reassured us.