Personal finance is a skill
Whether you’re saving up for a sunny vacation or just counting the pennies for a rainy day, personal finance should always be top of mind when it comes to your household. Creating positive spending habits and running a personal budget are life skills everyone should know, including kids. Introduce some of these budgeting tips into your home, to set a great example for your children and to make your life all the easier.
Know your cash flow
You may think terms like 'cash flow' and 'expenses' are only used in the office, but being good with money is universal, whether you’re running a business or just making sure your family isn’t overspending. Having a clear understanding of the funds you bring in each month, and money you pay out is essential; you can’t manage a budget if you don’t know what your budget actually is.
If you think having all this assigned to memory is too big an ask, try using Excel to make a budget worksheet. Even better, have this information stored in an online, secure document, so you can access it anywhere and update it as your life circumstances change. Here’s what you’ll want to have listed:
- Monthly income (your take-home pay and any other source of income)
- Credit card repayments (an approximate figure)
- Insurance premiums due (car insurance, life insurance, etc.)
- Mortgage repayments or rent
- Student loans (if any)
- Mobile phone plans
- Living expenses (your average grocery and utility bills per month)
- Car running costs or public transportation budget
- Child care/gym membership, etc.
- Savings/emergency fund (money you aim to save each month without fail)
Once you deduct your total expenses from your salary, you’ll have a clearer picture of what disposable income you have left.
Be realistic about your saving expectations
Of course, we’d all love to save £1,000 a month, but that’s just not realistic for the vast majority of people. Set budgets and spending plans that are achievable. If you aim to save £400 but find your monthly bills constantly eat into that, you’ll start to think you’re continually overspending and incur all the stress that comes along with it. In reality, £300 in savings is certainly still something to be proud of, and you shouldn’t feel guilty about needing to pay your bills.
Keep a sharp eye on your spending
Knowing what you can save goes hand in hand with knowing what you can spend. We’re all guilty of thinking a little treat here and there won’t make a difference, but these small expenditures quickly add up. When you are setting your monthly budget, don’t be modest about your spending. If you know you part with £20 a week on eating out, factor it in, or maybe you spend £20 on staying in and streaming services. Leave no stone unturned when you create a concise overview of your home’s finances.
See if your bank can help
Many online banking platforms allow you to set savings goals, and will send you a warning email if you are in danger of going into overdraft. Check with your bank to see if you can create a set goal or limit your spending, so you have more than one set of eyes on the money leaving your account each week. Even if your bank doesn’t allow this, many other spending apps exist, and once you are in the habit of tracking your spending, you’ll have a much clearer view of precisely what you part with month to month.
Don’t lose your documents
When tax time rolls round it’s common to wish you had been a bit more organised with your documents throughout the year. With a doc scanner you can simply take a photo and effortlessly have all your paperwork digitally converted. Save them securely in a Dropbox folder, or share them with a password-protected link and you’ll be on top of your business in no time.
What should my monthly budget be?
Your monthly budget should always allow for your essential expenses. So, if you make £1,500 a month, and your expenses total £1,100, that means you’ll have £400 left to feasibly spend without going into debt. If you want to put £200 into savings, then you’ll only have £200. Obviously, the smaller your budget, the harder it can be to stick to it. Generally speaking though, it’s better to overestimate your spending than underestimate it – after all, debt management is far more difficult than sticking to a budget.
There are different budgeting techniques you can try to make sure you get into healthy money habits, such as:
The 50/30/20 Rule
Created by Elizabeth Warren, the 50/30/20 budgeting program breaks down your finances into 'needs' (rent, bills, etc.), 'wants' (hobbies, shopping, etc.) and 'savings'. That means all your 'needs' should be 50% of your overall income, which may mean cutting back on grocery spending or finding a cheaper utility deal. Your 'wants' should come in at 30% of your income, and your 'savings' should take up 20%. Having a set goal like this can give structure and reassurance to your money management woes. It can also be quite flexible, as having 30% of your budget assigned to non-essential spending means you can easily just add another 10% to your savings allocation instead.
The Envelope Method
This is a great option for people who like to be more hands-on with their money as it is a cash-based savings system. While that might be a plus for anyone who hasn’t quite adopted the cashless way of spending, it does mean you’ll not enjoy the security of a debit or credit card. That said, studies do show that you’re less likely to overspend if you pay in cash.
This method makes you set out your budget on envelopes, one for groceries, one for hobbies, etc. You take the assigned envelope with you every time you head to the shops, to the cinema or out to eat, and when the cash runs out, that’s it, no more spending in that area until pay day. This gives a very clear understanding of how much you have left, as it’s right there in your hand.
How can I save on my household budget?
There are several ways you can cut back on your everyday spending, including:
- Going for cheaper brands at the supermarket
- Finding a cheaper deal on energy
- Consider what 'luxuries' you can do without
Speaking of luxuries – how many do you have? Internet, for example, is a vital part of any home, but are you paying for data allowances you don’t actually need? The speeds needed by a home that includes a freelancer and an avid gamer are higher than those needed by a young family, for example. Do your research and make sure that you’re getting the best value for your money.
Be money smart
Knowledge really is power when it comes to your household budget. Have a clear and accurate overview of what you make and what you spend and don’t rule out handy digital tools – if they can work for your office, they can work for your home. Dropbox allows you to store receipts, financial documents and budgets in one easily accessible place. And with the Dropbox Family plan, you can get extra tools to make sharing and securing your budget files easier. This means that even if you’re opting for a cash-based savings system like the envelope method, you can still have a digital trail of your expenses and a clear understanding of where your money is going. Saving budget worksheets and financial documents with Dropbox will allow you to see them on multiple devices, conveniently share them with roommates and family, and most importantly, stay on track.