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Budget planning for the year ahead

To ensure that the year ahead goes to plan it’s important to get prepared, which is why January is all about planning ahead, setting goals and starting afresh. 

One important part of this is setting your budget for the year ahead, including the financial milestones that you hope to hit as well as everyday spending information. We’re not going to tell you how to run your household finances, but we do have suggestions for planning them properly.

A great budget should give you the visibility to ensure your finances are working hard for you. It can help you see where your money is going, cut away unnecessary expenses, and put the difference towards savings or other financial goals. 

Preparing your 2018 budget


1. Review the year behind you

A good budget is based on your real day-to-day spending: be honest with yourself. This means that the only place to start is with a clear sense of what is currently incoming and outgoing. You can get the most accurate picture by looking over last year’s spending and outlining your monthly expenses.

Of course, it’s also important to account for any obvious changes – if you know that your gas bill is about to rise, there’s no point using last year’s cost. Record these figures in whichever format is easiest for you to keep track of. You'll be able to find some useful templates and resources online - but don’t feel obliged to use a complicated spreadsheet if you know you work better with pen and paper. Do ensure that whatever format you choose is safe and secure.

Once you’ve got all of your expenses written down, it’s the perfect opportunity to see if there’s anything to get rid of. For instance, underused subscriptions can be cancelled, or a daily cafĂ© splurge can be trimmed to one treat per week or month.


2. Decide on some clear goals

At its most basic, a budget simply tracks your bills and helps ensure that you are paying the right amount on time each month. In practice, it’s more useful if you use it to work towards the financial goals or projects that you’d really like to succeed with in 2018.

Deciding on clear, tangible goals rather than basic savings targets makes this process a lot more meaningful. These should be based on your own needs and wishes, but might include things like a fancy holiday or home improvement project.

Two goals which everyone should strive for (if you haven’t already) are paying off debt and building an emergency savings fund.


3. Choose a budgeting method that works for you


Different techniques will appeal to different types of person. However, it is a good idea to choose a method and stick to it: this will give you some structure. Here are some of the most popular.

  • 50/30/20 – One of the simplest strategies out there. Divide your income up so that half of your monthly money is spent on essentials, 30% goes into savings (or paying back debt), and 20% is for the things you want (this includes non-essential services like TV and mobile).

  • 60/40 – A slightly simpler version of the above, where 60% is bookmarked for all bills, whether essential or not, and the rest is split 4 ways between a pension, long-term savings, short-term savings and fun money.

  • Maximum daily spend – This method involves calculating how much of your money is needed for bills and savings (you’ll have to decide a savings amount based on your own priorities). Divide what you have leftover by the number of days in the month to get your ‘maximum daily spend’. If you want to spend out on a larger purchase, then you can cut back on other days to make up the shortfall.

4. Take some time to reflect on your values, needs and desires

Every budgeting method functions by splitting your money into essentials, savings and debt repayments, and fun money. You can make your spending in this third and final category more meaningful if you take some time to consider what’s really important to you in life.

If a good meal with family is something that you really enjoy, but watching a movie at home is just background noise for playing on your phone then you might consider cutting the TV subscription in exchange for more meals out.

The idea is to realign your spending with the things that will really give your year a boost.

5. Stick to your guns

So far we’ve talked about creating your budget – but what about sticking to it? Arguably the hardest part, come mid-February you might find your will-power wavering. Staying true to the rules you’ve set yourself is easier if you allow for a little flexibility. Make sure you have some breathing room in case bigger expenses come along and catch you unaware (and try to factor yearly expenses like the car MOT into your original plan).

You should also make sure you budget for some treats. This allows you to splash out occasionally while still living within your means, and makes the process of getting on top of your finances far more enjoyable.  

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