There are plenty of us who start out with good intentions each month and try to keep a track of our spending, but end up running short as the end of the month draws near.
Services like Moneyboat can help provide a temporary financial solution, when you need some cash for a bill that needs paying before your next payday, but if you want to be able to manage your money as efficiently as possible, budgeting is the way to do it.
Mind over maths
One of the most important aspects about being able to manage your money successfully, is to understand that your finances are just as closely linked with habits and your psychology, as they are with the maths of adding up the numbers to make it all work.
Your mindset and how you view and value money is just as important as understanding how to create a budget that works.
No amount of spreadsheets and software are going to help you balance the books in your favor, unless you at least set out with the mindset that you need to spend less than you earn. It might seem blatantly obvious and a simplistic approach to the problem, but one of the fundamental golden rules of finance is that you should aim to create as big a gap as possible, between your income and your expenditure.
Start out with a budget
Putting some money away for the future is a good habit to get into, and even a small monthly sum set aside and invested, can turn into a sizeable sum over time.
In order to work out exactly where you are right now with your finances, you will need to make a comprehensive list of all of your expenses and monthly outgoings.
Don’t leave anything out and remember to include absolutely everything that you spend each month on a spreadsheet or on paper. It can be very easy to not include minor expenses such as buying a coffee on the way to work each week, because you think they won’t make much of a difference, but you will often be surprised just how you are spending each week on incidental items.
Using a budget to manage your finances is one of the best ways of ensuring that you don’t get into debt and control your spending, and having good money management skills as well as controlling your spending based on your income, will also help you to preserve your credit rating and improve your chances of getting a loan.
A system that suits you
Rather like finding a diet that works for you, unless you find a budgeting system that you are happy to run with, it is not going to be easy to stick to it.
If you don’t really have the time or inclination to break down all of your expenses into fine details for each cost every time, you might want to use a system where you divide your money into four basic categories, and then allocate expenses to the most appropriate one.
You can have one for fixed monthly costs for example, which will cover all of the regular monthly payments that go out of your bank account, such as mortgage or rent, utility bills and mobile phone bills etc, and then just put in one figure that covers all of these (once you have worked out exactly what you are spending in this area)
How you spend your money
Ideally, your budget allocation and spending should be roughly divided into four main categories, and this can give you an idea of where your money is going and whether your spending is in proportion.
It is likely that your fixed costs will account for up to 60% of your monthly money. If you aim to split the remaining money between things like savings and investments for the future (between 10% and 20%) and the rest on leisure or unspecified spending, like entertainment or a special night out.
If you manage to get these ratios about right, then you have something resembling a balanced and manageable budget. If when you put all these figures down, you notice that you are spending more than expected in certain areas, this can highlight where you need to try and make savings or reduce your spending to stay on track.
If you successfully manage to budget and keep control of your expenses in relation to your income, this can make a huge difference to your financial future.
Nicholas Krauspe is the Head of Operations at MoneyBoat.co.uk, a London based alternative finance company providing unsecured consumer credit to residents of the UK. Nicholas has over 10 years of operations and management experience in the consumer finance sector.