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How to take control of your finances with a yearly budget

Date: 10 January 2022

The start of a new year can provide the perfect opportunity to take stock of your finances and implement a budget. While it can feel like a daunting task initially, it can be very beneficial to reclaim control over your finances and feel prepared for the year ahead.

Budgeting is very important, as it is tricky to manage what you can’t measure. With a budget in place, you can better understand what you have available to spend, while also removing the pressure of worrying about money and giving yourself more freedom with your finances.

The main benefit of budgeting is being in control - having a clearer picture of your finances and learning to manage them more effectively. A tailored budget can help you plan ahead and ensure that your money, regardless of how much or how little, will be working as hard as it can for you. Additionally, referring back to your budget can help put a stop to unnecessary spending, or even give you the freedom to purchase a wish list item as you know you have the funds to do so.

Discussing how to implement an effective yearly budget, Rosie Hooper, Chartered Financial Planner at Quilter says:

“When creating a yearly budget, the priority should be ensuring it is realistic. The more realistic the budget, the more likely you are to stick to it. While you could search for a budget planner online, it will be unlikely to provide the personalisation required to cover the nuances of your personal finances.

“If possible, financial advice can be greatly beneficial. If you need support when creating a budget, a financial planner will be able to help analyse your expenditure and tailor your budget to suit your personal circumstances.

“Looking back on the past three months of your bank statements can be a good place to start. This will provide an idea of the regular, monthly payments that go out via direct debit, as well as other everyday outgoings on things such as petrol or your daily coffee on the way to the work. These outgoings can then be factored into your budget or may help to highlight unnecessary spending.

“When you have produced your baseline budget, it is a good idea to factor in an additional 10-20% for miscellaneous expenditure. Having additional expenditure already factored into your budget can take the pressure off when you have unexpected bills, such as replacing a punctured tyre. Equally, if you do not require the additional money, you can save it into a rainy day fund ready for when you do need it.

“Once your budget is in place, it is important to refer back to it regularly, review it often – every three months is a good place to start – and tweak it if you discover it is not realistic to help keep yourself on track.

“It is important to hold yourself accountable in terms of sticking to your budget, and if possible, a financial planner can support this during your regular review meetings.”

Top tips:

  • Keep it simple - to make a yearly budget less daunting and to save time, look over the last three months of expenditure and multiply your findings by four.
  • Factor in additional expenditure - don’t forget to budget for yearly or monthly expenditure such as household bills, insurance renewals and birthday or Christmas gifts.
  • Give yourself 10-20% leeway – having a buffer for miscellaneous expenditure can take the pressure off when you are faced with unexpected costs.
  • Hold yourself accountable – regularly referring back to your budget, as a couple or family where appropriate, can greatly improve your chance of successfully sticking to it.
  • Make it realistic – the more accurate and practical your budget, the more likely you are to succeed.