What is the most important aspect of your personal financial planning:
How much you EARN
OR – How much you SPEND ?
I always admired my Granny’s little collection of tea caddies that sat on the dresser in the dining room. Some round, square, hexagonal, triangular and all brightly coloured, all distinctive by their difference – 5 in all.
She explained: “Electric, Milk, Groceries, Post … Bingo” with a delightful blush.
That was her life on a budget, squirreling just the right amount of cash from her pension for each necessity. Strict Cash Planning.
There are two fundamental aspects of Cash Planning, both of which enable you to create a precise family / household budget.
Primarily, the budget sets domestic costs – SPEND, against how much you EARN.
Often, the hardest part of managing expenditure, debts and income is taking the first step.
It’s easy to feel overwhelmed and tempting to bury your head in the sand and ignore your bank statements and credit card statements, and unopened mail (particularly those brown envelopes).
So, take a deep breath, and begin. Jot it all down, and we mean ALL. Start with what’s going out, what you spend (we have guidelines available to help you with this, just ask).
Once you’ve done this, at least you’ll know what you have to deal with and you can work out what you need to do next.
To get started on your budget, you’ll need to work out how much you spend on:
- household bills
- living costs
- financial products, like insurance, bank charges or interest
- family and friends, this could include gifts, travel to events like weddings
- travel, car costs like fuel and MOT tests as well as public transport.
- leisure, including holidays, gym fees, meals out or other entertainment.
Balancing your budget
If you’re spending more than you have coming in, you need to work out where you can cut back.
It is impossible to do this on your own. Sit down together with your partner, make a plan, and stick to it.
For many of us, household bills make up a large chunk of our spending. Life is unpredictable so try to review your budget and your spending if there’s a change, or at least every couple of months. The good news is that it’s easy to save hundreds of pounds. The Government has a great website dedicated to such planning – HERE.
If you remember, we said that there are two fundamental aspects of Cash Planning. This is the second.
If, with a few tweaks here and there, your budget of outgoings is covered by your incoming funds, you are in a good place to sit down with professional help from a Financial Adviser and ask the question:
“This is what it costs to maintain our current lifestyle and it is the lifestyle we want to continue when our incomes stop – in retirement. How do I plan a retirement income, given these lifestyle costs?”
Because we know the costs, many of which will change as you progress through life, we can work out how to structure your affairs to best support the retirement lifestyle you deserve.
…and, that’s without Granny’s Tea Caddies.