Budgets: Some love em’, some hate em’.
There are even those who like to claim they don’t work...
Here at Plum, we have no time for budget negativity 👎 Whether you like or loathe them, having a budget is an essential step in managing your money.
We're going to look in detail at why you need a budget, some common pitfalls, and how you can go about creating a budget that works for you.
Five reasons why you need a budget:
Being able to budget is so important for your personal finance. It’s central to keeping on top of your money and ensuring you’re making it work for you. The 5 main benefits of budgeting are:
- You avoid spending more than you earn. Knowing your income and expenditure allows you to adjust your spending habits and make sure you’re living within your means. This is essential to avoid overspending and slipping into problem debt, such as credit card debt 💳
- You know exactly where your money’s going. Keeping track of what’s moving in and out of your bank accounts will make you more conscious of your spending, and will let you quickly clamp down on any unexpected payments or sneaky bill increases, saving you extra money in the long term 🤑
- You can spot where you need to cut down. Knowing what you're spending your money on can help identify problem areas, like an excessive takeaway habit 🍟 or an online shopping addiction. This can help you to cut down on these splurges and have more left over at the end of the month.
- You can plan for the future more effectively. Budgeting makes it easier to figure out how much you think you should be able to put in your savings account, and ultimately reach your financial goals quicker 🥅.
- You achieve greater financial freedom 💸 Most people see budgets as something restrictive that stops them having fun, but in fact the opposite is true! Budgets give you greater flexibility, by ensuring you have enough money to live off until the next payday. A budget can help you save money or escape debt by clearing loan payments, letting you channel your funds into the things you really care about!
Tried budgeting and failed? Read on 👇
Five ways you're going wrong with your budget:
- Your budget is too unrealistic. You may have created your budget off the back of a spontaneous resolution to set more money aside, and are now finding that as your resolve has wavered, you’re not quite hitting your initial targets. Remember, spending money is not a crime! A good budget should allow you room to live in a way that's comfortable, so you can actually stick to it!
- You’re not keeping on top of your budget. Budgets aren’t just something you do once a month and then completely forget about. You should be consistently checking in and updating your budget, so you know how much you’ve spent and how much you have left 🔎
- You’re not sticking to your budget. Sometimes it just boils down to the fact that you’re not following your budget. If this is the case then you should review your budget to account for whatever’s causing the recurring problem. At the end of the day though, your budget won’t work unless you learn to say no to some things in life ⛔ Self-control is important when sticking to your budget, so you’ll need to avoid unnecessary spending and save for what really matters to you.
- You aren’t adjusting your budget. Sometimes in life you have to be flexible, and the same goes for your budget. If you’re trying to maintain the same monthly budget but are not accounting for changes in your financial situation, like a reduced income or increased spending, chances are your budget just isn’t going to work. Remember that your budget also needs to account for annual spending as well as monthly expenses 📅
- You aren’t giving your budget enough time 🕑 Becoming a budget boss isn’t something that happens overnight. Gaining better control of your money is an ongoing process, and it may take a couple months before you start to see the results! If you think your budget isn’t achieving what you intended, reassess and readjust before abandoning it altogether!
How to make budgets work for you
The basics of budgeting are pretty simple. It might take a bit of trial and error, but we’re confident that once you get into the groove of budgeting you’ll soon start to see the benefits 🙌
If you're not a fan of pen and paper and you shudder at the thought of an excel spreadsheet, a budgeting app may be the way forward 📲
There are lots of budgeting apps out there, but lookout for one that uses online banking to link with your bank accounts in order to automatically track and categorise your spending. This takes some of the legwork out of tracking of your finances, and there’s evidence that using a budgeting app can help reduce your spending significantly.
Plum has several clever budgeting tools 🔧 Our Diagnostics feature categorises your spending, and can even tell you how your spending compares to someone in a similar financial position. Meanwhile True Balance will tell you how much money you’ve really got, after any ongoing bills and subscriptions are paid.
We’ll also tell you if you’re overpaying on bills and let you switch easily within the app. So you can budget like a pro and smash your savings goals all in one space.
This whole budgeting thing's not sounding so hard now, is it? 😉Download Plum