Tips to manage your budget

When it comes to managing household finances, budgeting makes sense. However, it’s sometimes hard to accurately estimate what your outgoings will be each month. Unexpected bills and one-off costs can disrupt the best-laid plans! While there is no perfect way to ensure you live within your means, we have some suggestions that might help. 

Living by the 50-20-30 rule

First of all, there’s the 50-20-30 rule. A wealth-management technique that divides your monthly income into three categories: 

50% for essentials: rent and other housing costs, such as groceries, electricity or transport

20% for savings: savings accounts, retirement contributions, loans, or credit card payments

30% for everything else: non-essential expenses, such as clothing, eating out, monthly streaming subscriptions, or gym memberships

While you might not have a problem remembering the numbers 50-20-30, the rule itself isn’t always easy to live by. When it comes to expenses, one size doesn’t fit all and lifestyles will vary depending on, for example, where you live. City living can be more expensive and people may spend a large part of their income on rent, which can cause problems if your income is irregular. Housing costs can also be particularly tough for those in low-paid jobs.

The 80-20 plan

Even simpler than the 50-20-30 rule is the 80-20 plan. Instead of separating every expense into what’s essential and what’s not, you take 20% of your monthly income and deposit it directly into a savings account. What’s left over is available to spend however you want.

A good tip here: create an automatic transfer that sets aside 20% as soon your monthly salary is paid. By immediately placing the cash in a separate savings account, it’s like you never had it in the first place! 

Personalise your budget

Everyone’s budgeting needs are different. That’s why it’s sometimes better to create your own method. Start by calculating all your monthly expenses. Check your bank statements to make sure you’re noting everything down. Mortgage or rent costs are easy to remember, but subscriptions, such as streaming services or phone contracts, may slip through unnoticed. And remember to account for payments that come off less regularly, such as annual fees. 

Once you know how much you spend, a quick calculation will tell you what’s left each month. This is easy when you have a regular salary but could be a little harder to determine if you have a freelance job or get extra funds from other work, rental income, or interest payments.

Quick Budgeting Checklist:

1. Calculate your expenses 
2. Determine your post-tax income 
3. Set your savings goals
4. Keep track of your expenses 

Once you’ve counted up all these numbers, you can decide where your money will go each month and how much disposable cash remains. 

Remember, it’s important to monitor your expenses on an ongoing basis. Save all your receipts and cross check them against your card statements at the end of the month. See if you’re overspending in certain areas or if you can save a little more.

Keeping an eye on income and spending is not easy. However, working to a budget can simplify matters. Once you have established a reliable system that tracks your money, the process becomes less tricky, and you’ll find it easier to take control of your finances.    

Source: John Hancock

How much do I need to save?
Find out more by using our target savings calculator!