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Being a Better Grownup: Sensible Strategies for Setting Up Your First Budget

Setting out into the world of work and self-dependence is exciting and daunting. Whether you are bringing in what your parents might think a “proper” salary or struggling to maintain your independence on a more precarious income, what you do with it is down to you alone. One of the things that will determine whether you make a success of your freedom is how you handle money. Everyone talks about the importance of setting a budget, but how do you go about it?

Work Out Your Income

The first step is to know how much you can expect to have to come in each month over the next 12 months. If you are in regular employment, that is as easy as looking at your pay cheque.

If you are self-employed, or on temporary contracts, agency work or another form of work which brings an irregular income, you need to be realistic, verging on the pessimistic! The more months you have been earning, the easier it is to make a good prediction for the year ahead.

Add in an estimate for non-regular income, if you get any – tips, bonuses, etc. Then divide your annual income by 12 to give you a monthly figure.

List Your Outgoings

Make a list of everywhere that the money goes out. Try to group your spending under two headings.

Necessary expenses are those you do not have much choice about. The mortgage or rent, taxes, insurance policies, utilities, car costs, loan repayments, and basic food requirements are examples.

Discretionary expenses are those you choose to have. Eating out, holidays, home improvements, gadgets and luxury items are examples. There may be things like a daily coffee that you hardly notice at the time, but they add up to make a fair impact over a month and a shocking amount over a year.

Add In Some Savings

There is no better time than now to start saving for a pension. A good rule of thumb when you start to put retirement money aside is to take your age, divide it by two, and put that percentage of your income (including the employer’s contribution, if any) into your pension pot. So a 20-year-old would put in 10%.

Also aim to save for other big expenses that you can expect over the next ten years, for instance, a new car, a wedding, some new furniture or kitchen appliances.

How you balance the expenditure is up to you. Some people recommend a 50-30-20 approach: 50% for unavoidable costs, 30% for enjoying life, and 20% for savings.

The Cash Flow Factor

Even if your average monthly income is greater than your outgoings, you may find that you have some big expenses early on for which you will not have money available. You may be able to pay by installments, but this tends to work out more expensive overall, so try to put extra money aside so that next year you can pay in a lump sum.

Compare the figures

You will probably find that the expenses are greater than the income. The solution is simple to state but hard to achieve: increase your income or decrease your expenditure.

Increasing your income may be an option if you are due for a rise in pay, or if you are in a position where it would be realistic to take on extra work.

It is more likely that you will need to trim your expenses. Start with the discretionary items, and trim the things that you can live without – maybe a coffee twice a week instead of every day, or a packed lunch instead of a visit to the fast-food outlet. It might be healthier, too.

Look at your fixed costs. Are you paying more than you need to? Utilities and insurance are prime examples of expenses where many people are overpaying because they carry on using the same provider when cheaper ones are available. Use the comparison sites to find out.

If you possibly can, avoid cutting into your long-term or medium-term savings.

Moving On

Managing money is an important part of the adult life and a skill which too many people put off for too long. The sooner you start to budget, the sooner you can start to decide what you really want your money to do for you.


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