How to budget effectively

Whether you're working out what you have until payday or trying to save for something special, chances are at one time or another, you've sat down to work out how far your money will stretch. Sometimes it can be hard to plan for the unexpected. If it's a hefty bill to fix your car or your home, or a sudden reduction in your income, it can be a worry to know where the money will come from.

That’s why we’ve put together some simple ways to help you budget, including some useful tips from our colleagues at The Co-operative Bank.

We understand that getting on top of your finances can help to reduce stress and support mental wellbeing. Even if one budgeting technique doesn’t work for you, you may find that another is the answer you’ve been looking for.

Regular account check-ins

Regularly checking your current account is one of the most obvious – and underused – budgeting techniques. By using the mobile app, online banking or automated telephone banking, you can quickly check your account each day. This will help you to keep on top of your finances and prepare for any outgoings.

In addition, if you’re a customer of The Co-operative Bank and have provided your mobile number to us, you will be automatically opted in for overdraft text alerts (excluding Cashminder accounts). This will notify you either before or when you have entered into an arranged or unarranged overdraft. We will also notify you when you don’t have enough funds in your account to make all of your scheduled payments that working day.

You can make sure we have your mobile number by updating your contact details through online and mobile banking, or by contacting us in branch or over the phone.

Online budgeting tool

Using a budget calculator can work out how much you are spending and how much you could afford to save, based on your current incomings and outgoings. There are free tools online that you can use whenever you like to reassess your monthly budget as and when things change.

Our colleague Gill Holmes, Manager at our Bristol branch, recommends reviewing your outgoings at least twice a year. “It’s a good way to keep track of your bills and spending," she says.

Budgeting techniques for you to try

These budgeting techniques offer potential ways for you to save money, pay off debt and plan your finances. Choose the best option depending on your personal situation and what works best for you.

The 50/30/20 rule

This rule might sound complicated but it’s actually a quick and easy way of planning your spending. 50/30/20 means that you spend 50% of your income on ‘needs’, 30% on ‘wants’, and 20% on savings or paying off debt beyond the minimum amount. It’s a simple way of breaking down your outgoings to cover all the things that matter.

For example, if you earn £2,000 per month after tax, then you would spend £1,000 on essentials such as mortgage, bills, and food shopping. A further £600 could then be allocated to non-essential spending or ‘wants’, such as meals out, clothes shopping and holidays. You would then still be left with £400 to invest in your savings, or to pay off debts beyond your minimum payments.

Michelle Henson, a Manager at our Macclesfield branch, suggests that you could even set up multiple accounts, such as one for bills, one for holidays etc, to help you organise your finances. Michelle explains that by using this budgeting technique, “you know your bills are covered and you’re less likely to overspend.”

It’s important to remember that if you have debt, it’s recommended that debt repayment should take priority. The 50/30/20 rule is a guide and can be tweaked to fit your individual circumstances.

Zero-based budgeting

Zero-based budgeting involves allocating every penny of your income to a specific purpose each month so that you have zero money left over. In other words, you know exactly how much is set aside for bills, for debt repayments, and so on. This can help you manage your money in tough times and avoid any shortfall in your budget.

With zero-based budgeting every single penny is accounted for, rather than falling into a broad spending category. It’s a good technique for those who know they have very little money to spare and need to stick to a strict budget.

Pay yourself first

This technique will help you get into good budgeting habits and grow your savings at the same time. It simply means that on payday, you set aside a certain amount of your salary, perhaps 5% or 10%, and put that straight into your savings. By ‘paying yourself first’ in this way, your savings are guaranteed and you immediately know how much you have left to spend on everything else.

This approach is an alternative to saving from ‘what’s left over’ at the end of the month, which can make it harder to save as the figure is reduced by other spending. Antonia Wiggins, Manager at our Stafford branch, also advises setting up a standing order from your current account to your savings account each month so it’s done automatically.

If this technique works for you, it might also help to incrementally increase the amount you save so can build up savings over time.

And remember…

Our colleagues at The Co-operative Bank are on hand to help if you’re having trouble with your day-to-day money management. We know that your personal circumstances can change and that planning a budget is not always easy, but we can help to guide you in the right direction.