How to Improve Your Budgeting
Budgeting is essential for financial stability, whether for personal or business finances. The benefits of good budgeting include reducing financial stress, planning for the future and making informed financial decisions, whether managing a household, running a business or leading a charity. We want to share some tips to improve your budgeting, to make it more effective and to give you ideas you may not have considered.
First, understand your financial situation
The first step to improving your budgeting is understanding your financial situation. To do this, you need to track spending over a period of time, we suggest 3-6 months to see patterns emerge. You might be surprised by how much you spend on non-essentials. Many people find that unused subscriptions, takeaway drinks or impulse purchases add up significantly over time. Things to keep in mind are your income sources, bills and discretionary spending.
Set clear and realistic goals
When you have a goal to hit, it makes it more realistic and easier to imagine. Short-term goals, typically 6 months to a year, and long-term goals, maybe the next 3 to 5 years, can provide you with direction. Goals can include saving for an emergency fund, reducing debt, increasing profit or investing in growth. Make sure the ones you set are specific, measurable and achievable, setting unrealistic goals can damage your motivation and make them seem unattainable. Setting a timeline alongside each goal helps keep you accountable and on track.
Create a practical budget plan
For this, you will need to categorise expenses into fixed and variable costs. Then allocate your funds for essentials such as rent, taxes and salaries. Fixed costs include rent, salaries or software subscriptions, and variable costs might be entertainment, office supplies or travel expenses. Don’t forget to account for less frequent expenses like annual insurance or servicing, which can be easily overlooked and may disrupt your budget.
For personal budgeting, use the 50/30/20 rule. This rule suggests that you allocate 50% of your after-tax income to needs and obligations that you must have or must do. 30% to be spent on things you want but don’t need and the last 20% to savings.
For businesses, cost-control strategies are a great way to go. Some effective strategies include reviewing supplier contracts, reducing waste and automating expenses, all of which can be highly effective.
Use budgeting tools and technology
There are a variety of tools out there that can help you with budgeting. Digital tools and apps can help track expenses and automate savings. A great example is using spreadsheets and finding a budgeting template, allowing you to input your information and automatically calculate totals. For businesses, they can benefit from accountants or accounting software for real-time budget monitoring.
Individuals: Apps like Emma can help with tracking and automation.
Businesses: Software like Xero provides real-time budget insights.
Charities/Non-Profits: Grant management software can assist with budgeting for fundraising.
Plan for the unexpected
Life and business can come with many surprises, so you need to make sure you budget for emergencies. Create a fund for any unexpected costs that may arise. Regularly review any financial risks that may crop up and plan accordingly, however, as these expenses are unexpected, you can’t always be fully prepared, but you can take steps to minimise the impact. Some examples are sudden medical expenses, job loss, equipment breakdown, loss of funding and unexpected demand for services, and these are just a few.
Our suggestion would be to aim to build an emergency fund that covers at least 3-6 months of essential expenses. These may be bills, food, payroll, rent, etc. Building this buffer will give you peace of mind when the unexpected happens.
Always monitor, adjust and improve
A budget isn’t set in stone, regularly review and refine it to suit the situation. Doing this monthly or quarterly is a good habit to get into. Identify areas where you can cut unnecessary expenses and reallocate to other priorities. Compare your actual spending to the budget to stay on track, small tweaks over time can lead to big improvements in the long term.
Avoid these common budgeting mistakes
- Not saving for irregular expenses: Costs such as annual insurance or car maintenance can often be overlooked, but these also need to be accounted for in budgeting.
- Failing to adjust your budget: Your budget should change with your financial situation. For example, if you get a promotion or lose your job.
- Underestimating small expenses: Daily coffee runs and subscriptions can add up throughout the month. Remember to factor these in, or start getting your coffees weekly instead.
Seek expert advice when needed
Accountants and financial advisors can provide you with so many valuable insights. They also can provide help with tax planning, growth strategies and financial forecasting.
Businesses: May need help with tax planning, cash flow management and investment strategies.
Personal: Can benefit from guidance on savings, pensions and debt management.
Working with an accountant isn’t just for businesses, individuals can also benefit from expert financial advice. An accountant can help you analyse spending trends, optimise savings, and ensure compliance with tax regulations.
Knowing your finances, setting goals, using tools and continuously improving your budget is the perfect way to see your goals come true. The better you get at budgeting, the more financial freedom and stability you’ll achieve, giving you greater control over your future.
Whether you’re a business, individual or a charity/non-profit looking for advice, our experienced accountants in Brighton and Wimbledon are here to help. Get in touch to discuss your finances and budgeting needs.