It’s important to understand why. With a budget why would you want to spend less on eating out? If you have the money and no plan with what to do with it, then why not? Below we’ve added some tips on giving yourself a reason to budget!
The 50/30/20 rule
A rule you’ll see often dotted around the internet is the 50/30/20 rule (popularised Senator Elizabeth Warren in her book All Your Worth: The Ultimate Lifetime Money Plan) - which splits your after-tax money into needs, wants and savings. It’s a good rule of thumb for separating your money; spending 50% on needs, 30% on wants and 20% going into your savings. The amount of the percentage can differ from person to person but these three areas can provide a simple way of breaking down your budget and the percentages give an idea of ‘this is what people tend to do’. Let’s explain those three areas in more detail.
Expenses you cannot do without are needs. Examples include rent, utilities like electricity, minimum you need for clothing (basic clothing 👀), supplies for living like toiletries, transport and minimum debt payments.
Wants are the things you don't need but choose to spend your money on, such as; eating out, takeaways, subscriptions, holidays, going to the pub. If you were to not have them, you would be able to carry on just fine.
Then we have savings which is the money you're setting aside for long-term goals like a deposit on a house, emergency fund, investment, pension or paying off your debts more quickly (above the minimum payments).
How 50/30/20 can help with your budgets
Starting to think about your money in terms of needs, wants and savings is a simple and useful way to break down your money. You can then use your budgets for each category in the app to help get your money to where you want it to be! For example, you might say something like 'I am going to spend £50 less on eating out and shopping so that I can buy that T-shirt I want', or 'I am going to cut back £30 on my subscriptions so I can put more money away into my long-term savings'.
With budgets for your categories set-up, it takes the hassle away from keeping track of your spending and gives you real-time feedback - rather than toting your spending up on a spreadsheet or notebook at the end of the month.
Saving for infrequent expenses
Having a nice holiday is great but paying it all from one paycheck can be rough.
Break those large less common expenses into smaller payments throughout the year. A summer holiday or Christmas gifts would be a lot easier to pay for if they were spread across the year, so work out how much you might need and put a little away each month! (Although you’re saving, this would be taken out of your wants).
You might need to adjust your budgets, such as reducing your spending on ‘Eating out’ and ‘Shopping’, to take into account the savings you’ll be collecting for whatever your goal is.
Separate your direct debits
Setting all your bills to come out on the same day, setting up an account for your bills to come out of or perhaps paying your bills from a pot (as some banks allow), are all ways that you can avoid unwanted surprises. Picture this, you open up your banking app to check and see if you have £50 to go out to dinner this weekend, yep! More than enough, so you go… but whoops, you’ve forgotten your phone bill comes out on Monday and now you need to find some extra cash.
Although you might have your budget set, having extra money in your bank can make it a little more difficult to keep track of how much you have left on the day-to-day. Setting your bills aside and away from your pot of money for the month, can avoid this.