2) Create a Realistic Budget
An essential aspect of creating sustainable financial stability is to be in-control of your cash flow and be mindful of your expenses. Creating a budget will enable you to start planning for the future while also helping you keep track of where your money is going.
A budget is essentially a plan that allows you to direct funds towards different areas of your financial life such as necessary expenses, discretionary expenses, debt payments, personal saving goals and retirement investing. Without a budget you run the risk of overspending and reaching into your savings, so it’s imperative that you start budgeting today.
However, in doing so remember to set a realistic budget and one you can stick to. The most common budgeting rule is the 50/30/20, where 50% of your income is dedicated towards your necessary needs, 30% is reserved for your discretionary spending such as eating out, non-essential shopping, holidays etc, and the remaining 20% is either saved or invested.
You can use this handy calculator to help you calculate what your budgeting should look like according to the 50/30/20 rule, based on your income after tax.
3) Pay Yourself First
A good tip to keep in mind is to not wait until all your bills have been paid and all your shopping has been done to then put some money on the side as savings. If you do that there’s a high probability that you’ll have very little left to put away.
Instead, set up a savings account that can automatically transfer a set amount, predetermined by yourself and your budgeting plan, every time you receive your income, basically paying yourself first.
For example, if you decide to follow the 50/30/20 rule of budgeting, once you’ve calculated what your 20% is, you can transfer that directly to your savings account and forget about it. So if you make £1,800 a month after tax, then £360 should be going towards your savings. That way you can better reach your financial goals and be aware of how to plan your spending for the month ahead with the remaining money, to stay in-budget.