Transcription
Hello and welcome back to The Frugal Spender. Today we're going to talk about budgeting.
So today, I wanted to talk about budgeting. So, what is budgeting? Everyone always thinks of budgeting as this really negative thing, and people just shy away from it simply because of the negative connotations that it has. But put simply, budgeting is just having a plan for your money. It's deciding where your money's gonna go rather than just winging it every month, getting to the end of the month, looking back, and thinking, "What on earth happened to my money?" It's actually taking charge of what you're doing with your money rather than just thinking that everything's going to be okay. And the reality is, rather than being restrictive, you can actually allocate money to yourself to spend on frivolous things if that's what you want. But rather than just thinking, "Yeah, I've got the money," you're saying to yourself, "I'm giving myself this money to go and spend." So, actually, it feels a lot more empowering. And it sounds quite counter-intuitive, but when you start doing it, you realize that actually that is true.
So, in this video, I've put together my sort of six tips and six steps, really, to help you with budgeting.
So, step number one, and this is to be open and honest. Okay? Now, this is not only with yourself, but if you have a partner, a husband, girlfriend, boyfriend, wife, you need to be open and honest with them too. Because the reality is, if there's more than one of you in a household, everybody needs to be on board with what's going on. It's very, very easy to just spend, and every day you go to work, you buy yourself lunch and coffee, and you don't really look at your bank balance. You just, in your mind, you think, "Yeah, I'm pretty sure I've got the money." And at the end of the month, you look back and you think, you know, "Where did it all go?" But the truth is, if you're going to take charge of your money, and budgeting is probably the best tool that you can possibly use to help you take control of your money, you really need to be open and honest with yourself and everyone around you that it actually affects in the household. It's important that you have these discussions with your partners beforehand. You need to decide that you're going to budget because, guess what? You can't do it by yourself because somebody else is continuing to do things that work against your budget, spending money, or just not really being intentional with their money. It's just not going to work. So, be open and honest.
Step number two, you need to write down on the top of a page or a spreadsheet what your total monthly income is for the household. Now, I prefer to use a spreadsheet simply because it's easy to edit, change things, and see an end result. As a result, things changing gets a bit messy if you write things down, have to chop and change and edit things. The beauty is also, everybody has smartphones these days, and most of them have the opportunity or ability to open, you know, Microsoft Excel or Google Sheets on the go. So, if you're in a coffee shop and you want to make some amendments to your budget, you can do. You don't have to be at home on a laptop or have a book with you. So, what you need to do is write down your total income. Now, this includes your salary and your partner's salary, any side hustles, anything you sell on Facebook Marketplace, eBay, you know, any sort of extra money that comes in. That needs to be at the top of the page. Now, this must include things like, you know, any benefits you get, child benefit, anything. Any, think of it, and you might not really be consciously thinking of these things as income, but it's all money that is coming into the household, and that you need to manage, and you need to put it where it needs to go. So, write down a list of everything. Have a total at the top of exactly what that magic number is. Now, have that in bold. Okay? That is the magic number that, yeah, we do want to increase that number. At the moment, that's what we have to work with. We have to start somewhere with this budget.
Step number three, list all of your outgoings. Now, this is the step that's probably going to be quite sobering for a lot of people. Now, you need to remember step one when you're doing step number three because you need to be very open and honest with yourself. There's no point in fluffing the numbers at this point because this is going to give you a starting point and a direction of where to go from here. So, what you need to do is, if you use online banking, look on your phone for the last three months of all your expenditure. If you prefer paper, go into the bank and get your statements or request a statement. All this will do is list every transaction that you've made on your bank. Now, this, if you use cash, then you know, you need to estimate the cash that you have used previously. You really need to go down into detail because there's no point in doing this if it's not going to be completely accurate. Now, what you need to do is, all of those transactions, you need to put into two columns: needs and wants. You have to be completely honest here because those two things are very different, and the line often blurs between the two for a lot of people. And you can convince yourself that a want is a need when it isn't. A need is something that you need to survive. Now, this will be shelter, essential clothing, essential clothing being the key word there, gas and electric, heating, food, petrol to get to work. Okay? Other than those things, really, you don't need anything. Obviously, to live in the world, we want to have things that we enjoy too, but it's important that we distinguish between needs and wants. So, once you've listed all your needs, pretty much everything else is going to fall into wants. Now, what you're probably going to find is that you can cut back a lot of your wants. Wants could include eating out, coffee, expensive clothes, impulse buying, subscription services for, you know, Netflix, Amazon Prime, more probably some more expensive ones that you forgot that you even had until you confronted all of this and looked at your bank statements. You know, were completely honest with yourself. Now, this step is purely just listing those, but you need to be honest.
Step number four, now you need to minus your outgoings from your income. Okay? Now, this really is your magic number. There's two options here. Either you have money left over, and that's a positive number, in which case, well done. You're not going into debt in any way, shape, or form. Or the second option is that it's a minus number. Now, that only means one thing: you're either using overdrafts, credit cards, loans. You know, if you're doing this day in, day out, or month in, month out, you're racking up some serious debt. Okay? And realistically, you, this needs to stop, and action needs to be taken. Even if your number is positive, I can assure you, there's going to be plenty of things that you can do to get that number bigger, be more intentional with your money. So, when you budget, you can put that money to better use. So, if your number is negative, it's a minus number, right? You need to stop immediately. Stop what you're doing right now because it is time to take action. From here, you have two options. You can either lower your outgoings or increase your income. Preferably, you'd do both. But if you can only do one, it's going to improve your finances. If you do both, you can exponentially improve your finances, and before you know it, you're snowballing into an area whereby you're in a much better financial position. By doing so, you'll get there quicker by doing both, but it's still a step in the right direction by doing one of those. The easiest one is to lower outgoings because it's instantaneous. Increasing your income takes a bit of time with, you know, getting a pay increase at work or working on some side hustles. However, the best and easiest way to do this is to be brutally honest with your outgoings and remember, so there's ones that we're looking at.
As a side note, if you are in debt, you have credit cards, loans, or overdrafts, what I would say, and what really worked for me, is a man called Dave Ramsey. Now, if you've got anything or YouTube, do anything to do with finance, you will have come across Dave Ramsey. It is very American in its approach. Dave Ramsey is American, but his approach is to have no debt whatsoever. Now, there's a lot of people in the UK, and I would say probably take an alternative approach to that because we believe that our credit cards are better, student finance is better too, which I probably agree with as opposed to it being an actual loan. It's really more of a tax. But his steps really make a lot of logical sense, and if you stick to them, I'm not going to go through them here. I'll do, we'll do in a separate video. But essentially, you need to have money in the bank as an emergency fund, you have no debt, and then you make, you know, you take incremental progress towards saving towards your retirement, irrespective of your age. You pay extra money towards your mortgage, and you save money for your kids, if you have them. And then his final step is to give money away. So, the foundations are there. You don't have to follow it, you know, by the letter or word for word because a lot of it is very Americanized, but the concepts work everywhere. It doesn't matter where you live, numbers work the same, and the concept of not having debt means you have a lot more money to save, invest, spend on things that you want to spend money on.
Step number five, we now need to get that number to zero. Why? Why do we need to get that to zero? Well, it's a concept that I use, and it's called a zero-based budget. Now, that doesn't mean that you, at the end of the month, you work to zero and you just kind of spend the money to get zero. It means that you're really intentional with your money. You budget your money the month before, sometimes two, three, some people budget a year in advance. Now, things will change, and that has to be fluid. But what it is, is making you aware of what's going to happen in the future, and it gives you, you know, a surety, more than anything, that actually in a couple of months' time, I'm going to be okay. Now, getting your budget to zero is all about looking at what you have, what is the number, what is your income, and what is your outgoings. Your goal is to get your outgoings considerably less. You need to be spending less than you earn. That is a key, key phrase. Now, for me, I got that from a book written by Pete Matthew, which is called The Meaningful Money Handbook. I'll put a link in that in the description below. It's a brilliant book, and he's a great guy. He's got a lot of good content on YouTube, and very underrated, if you ask me. His information is phenomenal. But one of the key things in his book, and it seems obvious when you say it, but it's something that not a lot of us do: we need to spend less than we earn. That buffer, that extra bit of money, we need to be intentional. We need to be saving, we need to be investing, we need to be putting it into sinking funds. Now, all of these things, I'll do plenty of videos about in the future because they're all massive categories on their own. But today's video, I just want to focus on the concept of budgeting and sort of the key steps that you need to do to do it. The key concept here in this step is to get your budget to zero. Every single penny has a job, has a place, has a column, has a space.
Step number six, now this step is all about fine-tuning. Now, this is something that has almost blown my mind the last year, and these little things that I've done that have significantly improved my financial position. Now, these are things like, you know, not just going through your wants and getting rid of them. This is also going through your needs, looking at your gas and electric, giving them a phone call and saying to them, you know, my tariff's a bit high, can we make it lower? Negotiate. You can save hundreds of pounds a year just by one phone call. You know, that's a lot, that's good pay for potentially a 20-minute phone call. Now, if you do this with everything, absolutely everything, phone bill, you know, do you need a contract whereby you pay for a phone for the handset? You know, can you, when that contract comes to the end, don't get another one? Because guess what? It's only been two years. That phone is absolutely fine. It's going to last you probably another three or four years if you wanted it. You know, you don't have to succumb to the marketing of Samsung and Apple and you have to get the latest phone. You just don't have to do it. Okay? I went from, I think I was paying 25 pounds a month for a handset. When I paid off that handset, rather than getting a new phone, I lowered it down to six pounds a month, and I had just as much data as I did when I paid for the handset. Now, that's not really a lot of money, is it? I mean, 19 pounds, it's not the biggest saving in the world, but you add that up for all the little things that I've done. I have done. I now have more money to invest in the stock market. So, fine-tuning your finances and just seeing how you can save a little bit here and a little bit there, you'll be surprised how quickly that adds up to 100, 200 pounds. And you know, if you've had that up over a year, that's between one and three thousand pounds a year. That's a pretty significant pay rise. You'll be striving to do that at work, but you can do it within probably a day just combing through your finances and fine-tuning your things. Now, I'll do more videos about how I've done that with my finances and some tips that I've come across in my research over the last couple of years. But get yourself into that mindset. If you don't have to deprive yourself of things, but if you can have the same product from somewhere and getting it cheaper by either comparison websites or phoning them directly and saying, "Can you make this cheaper?" You could save a lot of money.
So, that's it. That is my six steps to budgeting. Now, this is just a bit of an overview for somebody who doesn't really know much about budgeting. I just wanted to break down the steps that I have done and have worked for me. I will do a lot of videos moving forward on each one of those steps and sort of deep dive into it and share what I've learned over the last couple of years in relation to budgeting. So, please like, and if you subscribe, you will get a notification every time I release a new video and hopefully can give you some really useful content. And I'd appreciate it if there's anything you want me to talk about or anything that you think would help this channel, I would love to know in the comments below. Thank you.