Even the Chancellor of the Exchequer has to balance the books when it comes to the money that the government has coming in and going out. But effective budgeting isn't just for big business and the government - it can make a huge difference to us all. The sooner you start, and the more diligent you are, the more powerful its benefits.
What is budgeting?
Put simply, budgeting is the process of making a plan to spend and save money.
Is it important to budget?
Yes. As you get closer to retirement it’s very important to understand what your outgoings are likely to be – as you may only have a limited amount of income to rely on and you can expect inflation to make a dent in that each year. However with a good idea of what those outgoings are, you’ll be in a position to make practical plans and decide what you have to do.
Does it really make a difference?
Drawing up a budget and sticking to a plan? Yes. Good habits are hard to break, so if you’re sticking to a budget you should find it easier to save on a regular basis for the ‘treats’ you’d like to enjoy more spontaneously. And if you draw up a budget now, you could find yourself with spare income each month that could make a significant difference to your pension as extra contributions.
How do I ‘budget’ – is it hard?
No, it’s very easy. You simply work out what money you have coming in each month (from a salary or job, from savings, from benefits etc); work out what you must spend on essentials (things like food, where you live, the expenses of living); and what you’d like to spend on the ‘nice to haves’ (things like magazine subscriptions, holidays, or gifts for other people).
With those three figures in mind, you can see whether you’re spending too much – in which case you need to cut back – or if you have extra left over at the end of the month. Then you can look at ways to cut down on what you spend, if necessary.
It's never too early to start planning your retirement fund, so along with this advice we've also created a useful Retirement Budget Planner, to help provide an impression for how planning with a budget in mind can help you in retirement. You can take a look here.