Do you need a Budget?

Yes.

Okay well thank you for coming to my Ted Talk. It’s been a pleasure.

For those of you looking for more than a one word flippant answer, please ignore me and read on….

Everyone needs a budget. Family of 4? Yes. High income couple? Yes. Young bachelor? Yes. Single Mum/Dad of 3? Most definitely.

Unfortunately for us living in the UK (and most of the western world) budgets get a bad rap. Akin to a diet they’re seen as something that is designed to strip away enjoyment from your life. In the same way people see diets as a blocker to you from enjoying foods you crave, a budget is seen as an impasse between yourself and your hobbies and luxuries.

What we will explore in this post is whether this is true or if, possibly, it can be a tool you can use to access new and exciting freedoms.

What is a Budget?

A budget is a tool that is designed to track, collate and monitor your spending while giving you back easy to understand data. Budgets are extremely personal and each one should be unique to ensure it reflects you, your habits and your pastimes. 

It is at this point that a budget can be used to help you regulate your spending in each of these areas and more importantly give you an overview of really how much you’re blowing in areas you probably never even considered.

Within a ‘budget’ your spending will be divided into different categories to allow you to see at a glance where your hard earned money is being spent. For the majority of us our 3 biggest expenses will be; housing, transport and food. The money that is being spent in these categories will then be added together in either weekly or monthly periods.

Why Don’t People Use a Budget?

If budgets are so fantastic and useful then it would be safe to assume that everyone uses one; but as most of us know this is certainly a long way from the truth. Sure a lot of people budget mentally when they shop for their weekly groceries or purchase clothes but how many truly record their spendings and take a couple of minutes out of their day to  review it?

According to mint.com 65% of Americans have no idea what they spent last month – and the figures are likely to be similar for the UK. Alongside this the survey (https://mint.intuit.com/blog/budgeting/spending-knowledge-survey/) found that the younger the adult the less likely they were to budget. So what are the reasons for this? I surveyed a number of people around me and found the following:

• It takes too long
• I don’t want to cut out things I enjoy
• I earn enough money – it doesn’t matter
• I don’t want to keep track of every purchase I make
• It’s boring
• My parents never did

So with these being the most common reasons for why people claim they do not maintain a budget I will explain exactly how I stay on top of my expenses and why the above aren’t reasons that should prevent you from starting.

How I Budget

Personally I budget with a two pronged approach. The first weapon in my armoury is a free budgeting app and the second is my own homemade excel tracker. These two combine fantastically to allow me to quickly, accurately and simply track and record where my money is being spent each month. In essence I use a budgeting app to collect data for me which I then plug into my own spreadsheet to allow me to compare against any metrics I desire.

My budgeting app of choice

My current  budgeting app of choice is Yolt and can be found as a free download on either the Google Play Store or Apple’s App Store. After trying several various apps Yolt is the one I settled with as I find it has all the features I require, displays everything simply, has an easy to understand interface, biometric security and no annoying adverts. 

A budgeting app is software that is able to link to your bank accounts to display data such as transactions and balances and is generally much more user friendly for this than the bank itself. Features of this app include:

• Linking to multiple accounts – I have my current account, credit card, savings account and AMEX linked
• Overall balance – My homepage shows the value of my current and savings account minus my credit card balances.
• Monthly Transactions – Listed either in categories (Mortgage, travel, groceries etc.), by individual merchants or by using a timeline feature.
• Pay others without having to log into my bank account app
• Set allowances or goals for different categories
• Offers and links for various services/products (pension providers etc.)
• Earn rewards for spending at various merchants

Of the above features the two I use most are:

Overall Balance – By always being aware and in control of my overall balance I am never caught unawares by an unexpected bill and I can always ensure I pay off both my credit cards in full each month.

Monthly Transactions – The monthly transactions tab quickly and neatly lists all my ingoings and outgoings each month as well as details about the transaction (price, date, merchant and category). This is what I use to then update my own personal excel budget tracker.

My Personal Excel Budget Tracker

If I’ve just spent the last five minutes explaining most of the features of the Yolt app and how it makes budgeting easy, why would I then need to build and create my own spreadsheet to track this myself? Well it’s pretty simple – Yolt is built for everyone whilst my personal spreadsheet is designed specifically for me and the features that I desire. Although I’ve been calling it my budget tracker it does a lot more than this including:

• Personal net worth
• Yearly expenses separated monthly into my personal categories
• Mortgage value
• Pension value
• Investment accounts value
• Savings rate percentage (overall for year)
• Essential vs non-essential spending
• Progress towards FI (Financial Independence)
• Income vs Expenses
• Buy to let expenses vs income

For me, each of these features brings me value and the beauty of having my own tracker means that if I no longer need a feature I can simply remove it and replace it with another.

Secondly by being able to trend against and compare to previous months (and years if required) I can easily identify my spending habits and if changes i’ve made have had an impact.

Finally and potentially most importantly by transposing data from the Yolt app to my spreadsheet it forces me to think about each transaction and categorise it myself. This means that whereas before I may not have even noticed a number of expenses previously. By transferring the data to my spreadsheet it forces me to think about each one individually. I found that when I initially began to update this budget regularly I would often find expenses that brought me no value and I was simply paying for simply because I had forgotten about them. Examples include an unused amazon prime subscription (shared with my brother now), an old VPN and a phone contract that had expired and was now rolling monthly.

All of the above is great but the reality is that unless I can update this tracker in minimal time each month it is not a huge amount of use. I’m a busy person and the last thing I want to be doing each month is entering data into a spreadsheet. So realistically how long does it take me each month to keep on top of my budget? The building and setting up the budget tracker (with all it’s other features) was a pretty big job and probably took me a number of evenings to ensure all of the formulas were correct and it all interlinked correctly. However now I simply spend around 15-20 minutes each month to enter and review the data. The only occasions I need to spend more time than this is when I implement a new feature.  Hopefully in the near future I will be able to put a link to this spreadsheet here.

Why a Budget can Improve your Life

Up until now we’ve only really discussed how a blog can be a tool to save money but this is certainly not it’s only function. If used correctly a budget is a weapon in your armoury that can be employed to channel funds towards your hobbies, pastimes and enjoyments. By creating and maintaining a budget you can ensure that your hard earned money is being spent on things that truly bring you value. An example of this is myself in 2019 when I was preparing to travel through SE Asia. My flights were booked for the end of November and I therefore knew I had the majority of the year to save. My approach to this was again double edged; firstly I was at the front of the queue to volunteer for overtime at my place of work to increase my income and secondly I amended my budget to allow me to pour cash into my travelling fund in the following ways (savings will be in brackets):

• Transferred my utility bills to a new provider (£15 a month)
• Transferred my phone to a new provider (£10 a month)
• Reduced nights out with friends (£50 a month)
• Changed summer holiday plan to make use of close families house in France (£500)
• Cancelled unused subscriptions (£25 a month)
• Transferred internet to new provider (£15 a month)
• Cut out random purchases for my home (£15 a month)
• Made an effort to shop at Audi/Lidl (£20 a month)
• Banned myself from buying new video games until I had played those i already own (£10 a month)
• Reduced eating out/takeaways to a maximum of once a month (£40 a month)

I’ve spent the last 2 minutes going over the expenses above that I either cut out or reduced to see which of them reduced enjoyment in my day to day life. The only one outstanding is nights out with friends but here my technique was to go out to a bar early in the evening with them and leave before going to a club. This was the part of the night I tended to enjoy the least (getting old and boring now) and as an added bonus prevented me from being so hungover the following day.

So what I’ve concluded is that I made a number of changes which caused almost no detriment to my life and allowed me over the course of 11 months prior to my flight to save roughly £2,700. The real value of this to me wasn’t the saving of the money but the fact that this would give me the opportunity to spend at least an extra 6-8 weeks in SE Asia having the wildest trip of my life.

Final Thoughts

The key takeaways from this section and how a budget can improve your life are:

• Savings can be made from things that do not bring you value (cancel unused subscriptions)
• Savings can be made, but the value the previous product brought is maintained (swapping internet provider)
• Spending can be transferred from items/subscriptions/events that do not bring you value to those that provide you with joy, excitement and fulfillment.
• Spending can be streamlined to focus on areas of importance (paying down debt, maximising investments or saving for a dream holiday).

Overview

Hopefully what we’ve learnt from this blog post is that a budget will bring value to everyone and can be maintained with minimal input. If used correctly it can be a tool that can be used to transfer spending from what doesn’t excite you to things that you love. Too often I hear people complaining that they don’t have enough money to go on trips with friends or save a deposit for a house whilst buying a Costa/Starbucks coffee every month, overpaying for their mobile phone and having subscriptions to every streaming service at the same time.

My aim from this post is to show that budgets are not all about penny pinching but ensuring your money is spent in ways that most benefit your life regardless of your personal preferences.