Dear Monzo,
I’ve always struggled with budgeting. And I think it might be because I don’t give myself enough money to do anything!
I set my ‘eating out’ budget at £10 for the month, then promptly spend it all in a day, so my app spends the whole month telling me I’m over budget.
I so badly want to save all my money (because I’m barely scraping by) but it doesn’t seem to work. I just spend over all my budgets because I give myself so little to work with.
What should I do?
– Struggling with Budgeting
I’m guilty of this, too! But the thing I find hard to manage is my time. Whether it’s putting on eyeliner, loading the dishwasher, or getting to the train station – I frequently plan my days based on how long I’d like things to take me, rather than how long they actually take. Inevitably, this fails. And I arrive sweaty, stressed out – and late!
But it’s slowly dawning on me that people who are great at managing their time aren’t necessarily quicker at doing things. They’re just more realistic! And better at understanding their own circumstances and limitations, and taking these into account when they’re planning their days.
I think the same logic applies to managing your money. It’s great to be optimistic, and aim for strict, ambitious goals. But it sounds like you’re setting yourself up to fail, before you’ve even started. You’ll find it harder to keep to your budget if you’re setting goals you know aren’t realistic.
"It’s great to be optimistic...But it sounds like you’re setting yourself up to fail"
The key to budgeting is knowing yourself really well, and being honest about what you can and can’t achieve with your money.
To do that, you need to take a look at what’s coming in and what – whether you like it or not – has to go out.
Let’s start with what’s coming in. Write down how much actually arrives in your account after tax, your pension, and any student loan repayments. This can be trickier if, like me, you’re self-employed and your income varies. I find it helpful to look at my income on a weekly rather than a monthly basis, to keep a tighter rein on things. Remember to factor in any other income you might have.
Next, write down all your essential and fixed outgoings. These are non-negotiables, like your rent or mortgage, your energy and internet bills, and any childcare or transport costs. If you have any debts (like credit cards or loans), include the repayments too.
Then, take the outgoings away from your income, and the amount you have left over is what you can use to buy everything else. That includes food, booze, clothes, books, toiletries, holidays and – crucially – savings.
Weigh up your long term goals with your day-to-day desires
You said you’re desperate to save all your money. So your next question might be “How much should I save?” And I wish I could present you with an exact number to aim for! But the truth is it’s really up to you. It depends on what you want in life, day-to-day and in the future.
If you don’t have much in the way of savings yet, it’s worth starting to build up an emergency fund first.
Advisers suggest you should have emergency savings of the equivalent of three months’ essential outgoings – enough to pay your rent or bills and buy food, if you were to suddenly lose your job or become ill enough you couldn’t work.
Debt charities suggest a rough figure of £1,000, which they say should stop you having to rely on debt if you needed cash in an emergency.
But really, you need to think about what would happen if your income suddenly stopped, and how likely this is to happen. Some people may have parents or a partner who could bail them out or put them up for a while if things got precarious. Others don’t, and could face homelessness if they can’t pay the rent. Take a realistic look at your own situation and work out how much you should aim to save so you’re prepared for an emergency.
Beyond this rainy day pot, think about what else you might want to save for. And weigh up whether these goals are a priority over stuff you want to enjoy here and now. Don’t just save for the sake of it, out of some kind of vague moral obligation to be 'sensible.' Otherwise you’ll constantly feel like you’re failing to afford to have any fun!
"Don’t just save for the sake of it, out of some kind of vague moral obligation to be 'sensible.'"
When you’ve worked out how much you can afford to save – and how much you want or need to save – make sure you pay yourself first. That means moving that amount straight into savings, as soon as your salary arrives in your bank account. This is the only way I can stop myself spending it!
Be realistic about your spending
Once you've put money in savings, look at what’s left and portion it out – realistically!
As much as I wish this wasn't the case! Your £10 budget for eating out is barely enough for a beer and a plate of dough balls at Pizza Express, which probably explains why you always find yourself exceeding it.
So when you work out how much you can spend on eating out, be sure to base your budget on the real cost of meals in restaurants you actually go to, not how much you wish they cost! Similarly, don’t set your budget saying you’ll only eat out once a month if you know you’ll never stick to it.
"base your budget on the real cost of meals in restaurants you actually go to, not how much you wish they cost!"
It’s definitely possible to spend £10 on eating out a month, if you order right and only go out once. And that’ll work for some people. You just need to decide whether you’re willing to make it work for you!
If you do want to give yourself more money for eating out, see if there are other things you can cut back on instead.
Look at the biggest or most unnecessary drains on your cash, and see if you can cut them back a bit. Mobile phones are always a killer. If you’re not on a SIM only deal or you haven’t switched your tariff since your contract was last up, you’ll definitely be wasting at least £10 a month.
If eating out is something you love to do, give yourself enough money to do it and try not to feel guilty! If you’ve done the maths correctly, you’ll have already worked out how much you can afford, so there’s nothing to feel bad about.
If you can’t balance the books, you have options
Ultimately, you might find that you just can’t balance the books because your outgoings are high and your income just isn’t. Transport, bills and housing are incredibly expensive relative to average wages at the moment, and many people are struggling to meet these supposedly basic costs.
"Transport, bills and housing are incredibly expensive relative to average wages at the moment, and many people are struggling to meet these supposedly basic costs."
So much isn’t in our control, and there are often very real restrictions on us being able to earn more or spend less. But if you’re finding that there’s a disparity between your incomings and outgoings, it’s worth asking yourself if there’s anything else you can do to boost your income or cut your costs. You can considering making small changes, or take some more extreme steps.
For example, to boost your income – you could have a clearout and do a car boot sale, or consider selling old clothes on eBay. Or for something more extreme, could you think about finding a higher-paid role, or even considering a different career?
It can feel icky to state that your main motivation is to earn more money, or your greatest ambition is to make enough to afford as many Pizza Express dough balls as you can eat. But there’s nothing wrong in thinking about your job as a means to an end of fulfilling other areas of your life.
To cut your costs, you could do a big audit of your bills to make sure you’re getting a good deal and not paying more than you need to on anything. Or if you want to take a bigger step, could you consider moving somewhere cheaper? Even if it’s not as nice or maybe further away, it could be worth it if it means you’ll have more for savings and day-to-day spending.
Be realistic, be brave, and be kind to yourself, and the budgeting will come.
Good luck!