The first time home buyer's guide
Budgeting – the task we all know we should be doing, but often don’t know where to begin. This guide shows you how to plan and stick to a budget by using a few time-saving tools to make the process as simple as possible. Once you know what to focus on, you’ll be able to take control of your finances one step at a time and become a budgeting pro.
The sooner you create a budget, the sooner you take control of your finances. By adding up everything you’re earning, spending and saving, you can spend less time worrying about money because your forward-thinking has fixed issues before they even have a chance to crop up. So instead of planning how to pay your next bill, you could be flicking through a catalogue to pick out a lovely new sofa.
Rather than feeling that the road to managing your money is one big task, try breaking it down into smaller chunks and tackling them one at a time. Here are a few tips to help.
Understanding your spending patterns can be really useful when budgeting. You might already know exactly how much your rent and utility will cost, but other regular expenses can have a big impact on how much you have left over at the end of the month.
To clearly track your expenses, try doing some detective work by investigating your monthly bank statements.
Three statements is a good number to start with. Making purchases by debit or credit card rather than in cash will create a clearer picture of how much you usually spend each month and in what areas you’re making the biggest purchases. You might be surprised how much those morning coffees are really costing you. For example, if a daily caffeine fix costs you £2.50, this adds up to around £75 per month.
You can do this by dividing what you spend into categories like ‘food’, ‘travel’, ‘bills’ and ‘entertainment’. Together, these categories will add up to your total outgoings amount.
And sticking to a budget doesn’t mean that you need to stop having fun. If you have any one-off expenses coming up such as a holiday or a new car, it could be a good idea to divide how much they’ll cost by 12, then add that number to your monthly outgoings. You can treat yourself while knowing your finances are in check by saving for that dream trip in advance.
There are lots of ways to make your money stretch further too, such as choosing matinee performances for cheaper theatre tickets, or inviting friends round your house instead of meeting in the pub – it’s all about being savvy with your cash.
Adding up how much money lands in your bank account every month will help you see what your take-home income is after tax. If you have more than one source of earnings, such as investments or income from property, add those to the total as well. Remember to take away anything else that’s deducted from your income, such as pension contributions and student loan repayments.
Whatever you have left after this step is your disposable income. This is money that isn’t required for outgoings and can instead be spent or saved in any way you like, depending on your plans for the future. You might want to spend this on little treats, such as eating at a fancy restaurant every now and then, or set up a savings plan for a bigger future purchase, like a deposit for a house or buying the latest laptop.
If you’re looking to the future, a savings account can be a great way to separate your money and earn interest on what you save.
If you’re considering borrowing money on credit, you should make sure you’re able to make your monthly payments on time so they don’t end up working against your budget.
If you aren’t sure what type of borrowing will be best, you can find out what the differences are between credit cards and personal loans. This extra bit of research could help make sure you pick the right option for your personal situation, and make sure that you’re not borrowing beyond your means.
When paying off multiple credit cards or loans, it’s best to first tackle the ones with the highest interest rates. This’ll help you reduce the outstanding balance sooner, as high interest rates can increase the amount you have to repay.
If you can, it’s also a good idea to pay more than the minimum repayment amount, and pay off the amount in full each month whenever possible. This may leave you with less cash in your pocket in the short-term, but future-you will be grateful, as you could improve your credit score and reducing the amount you pay in interest and late fees. This could then mean you have a bit of extra cash to spend on things you really enjoy.
You don’t have to have an incredible memory to keep track of all your income, outgoings and repayment dates. There are some great tools out there to help you keep a handle on your monthly budget.
Whether you get the pay rise you always dreamed of, finish paying off that sofa you bought five years ago, or sign up to another TV subscription so you can binge-watch your favourite show, a change in your spending or income will affect the cash you have left at the end of the month. It’s therefore worth reviewing your budget every month, and every time your situation changes.
(27.9% compound equivalent)
Need a helping hand with budgeting? The Barclays Budget Planner will help you calculate your monthly commitments and work out how much disposable income you’ll have left. Then all you’ll need to plan is what to do with the extra cash you’ve saved.