Millennial working in the UK are often known to spend money to maintain their flamboyant lifestyle and thus they end up spending everything they earned. Some of them feel the need for savings in case of an emergency like a medical emergency or they lost their job. We are witnessing a gradual transition in the mindset of people in the UK from spending lavishly to saving prudentially. Many of the people in the working class are now approaching financial advisors and money managers to learnthe art of saving and adopting a financial plan.
According to a research study, there is an increase of 1.3 million people as of 2018 seeking financial advice. The total number stood at 4.5 million people (which is 10% of the total working population of the UK) approaching financial planners. There are facilities like getting quick business loans with no credit checks in UK where direct lenders are offering unsecured loans to bad credit borrowers without conducting a credit check.
However, the interest rates they charge on these loans are exorbitantly high. This incurs additional liability for you in the form of monthly instalments which is high, thus distorting your finances. Thus, it is advisable to build your assets and wealth by using your assets, and not incurring additional liability.
What is Budgeting?
Budgeting is the best way to go forward to create your wealth in the long run and efficiently manage your income in the short run. Budgeting is the process of making a financial plan which distributes your income in an optimized manner towards your expenses. These expenses could be your rent, food, electricity, travel, clothing, liability like loan repayment and what is left after all this is your saving. The entire purpose of this exercise of budgeting is to analyse your spending to minimize it and increase your savings for doing investments.
How Can You Do Budgeting?
Let’s get to know the process of budgeting in detail:
- The foremost step in this process is to know your take-home salary after calculating all your deductions and income tax liabilities. If you have a second source of income like rent from tenants, some part-time/freelance job, home tuitions, dividend income etc. then add it to your total income. This is the final income you should write on the top of your budget.
- The next stage involves analysing and computing the expenditure that you incur every month. This stage will give you a reality check about where your money has been going in the past and where you can minimize the cash outflow. Segregate your expenses as fixed expenses and variable expenses and note them separately.
Start by writing your fixed expenditure which includes rent, loan instalments, mobile and internet recharge, insurance premium etc. These are fixed outflow which cannot be tinkered much to save money. The next category is variable expenses which include grocery, fuel costs, lifestyle expenses, travel and leisure spending, credit card bills etc.
The latter category is where you can optimize your expenses and start saving that money or invest in interest-bearing asset classes. If you wish to save money then you will have to cut back on your wants in the variable expenses category. Otherwise, you will have to rely on no credit checks quick business loans UK which is a big strain on your finances.
- Now that you have done your maths, it’s time to set your goals based on the budget. The savings is what is left after you have subtracted all your monthly expenses from your income. Either let your savings lie as cash in your bank or let it work for you and fetch returns out of it by investing. You can invest in anywhere from bank deposits to equity, and from gold to real estate based on your risk appetite.
The goals you set at this stage can be short term goals or long term goals. The horizon to achieve the short term goals are from months to a year and the long term goals come with a horizon of 5-10 years. An ideal short term goal can be to end your credit card spending or reduce your entertainment expenditure. A long term goal can be to buy a house with your savings and investments.
- Prepare a financial plan based on your final budget, this will entail where your fixed expenses will go, where your variable expenses will go and in which areas you will cut back spending. This will determine your minimum savings amount that you need to save every month, which subscriptions you will cancel, how will you reduce the fuel expenses etc. What amount will go to bank deposits or in mutual funds every month and how much will be your emergency fund. Adjust your spending habits accordingly so that you stick to this financial plan and your budget. Keep making changes in your budget regularly when your income increases.
Try The Modern Way Using Budgeting Apps
Have you heard of online budgeting platforms and applications in the UK? There are many such apps these days available on your smartphone which will make your budgeting extremely easy.There are apps like Emma, Yolt, Moneyhub, Money Dashboard etc. some of these apps are free and some are paid apps as they contain many enhanced features. There is a dashboard on these apps where you can track everything from your monthly goals to your expenses. There are many digital-only banks as well in the UK like Monzo, Starling Bank, Revolut with many new features and the credibility as they are backed by banks. You can choose any of these apps as per your usage and convenience.