January is the poorest month of the year. The cost of Christmas and New Year and the first winter heating bills combine with the longest gap between pay days of the year, leaving millions struggling to make ends meet.
In fact, 53% of UK adults have already said they have no disposable income left this month following their Christmas overspending according to one survey, while there is no shortage of repentant sales shoppers planning to revolutionise the way they manage their money.
But change can be hard, especially if you’re in the habit of simply buying what you need or want and hoping your funds last to the end of the month.
That’s why a well-planned budget is essential if you need to start cutting back – or even just want to keep track of exactly where your hard-earned money goes. So here’s a penny pincher’s guide to budgeting like you’re broke:
Use a budget tool
If you’ve never drawn up a budget then it can be pretty intimidating. It’s also far too easy to forget certain bills or essential spending.
So, consider using one of the many free budgeting tools online. If you’re trying to repay loans and credit cards, I recommend the National Debtline’s excellent weekly or monthly budget planner (here if you’re in Scotland).
If you want more general help cutting your spending down to size, there’s a pretty good tool available on the Money Advice Service website.
If you have a smartphone you can even track spending on the move, free apps like iXpenseIt Lite for the iPhone or Toshl Finance for Android let you enter your spending on the move.
[ See also: The best money-saving smartphone apps]
Break it down week by week
Working out your monthly budget is important, but some months are longer than others. Calculate your weekly spending allowance across the year too, so that you don’t find you can’t afford lunch at the end of a five-week month.
Don’t forget Christmas
If you’ve drawn up a perfect budget that allocates every penny either to bills, day-to-day spending or your savings account, how will you cope with unusual spending?
Christmas, birthdays, days out – every household will want to spend money celebrating from time to time or life will be pretty miserable.
Set some cash aside each month so you build up a ‘present pot’.
Factor in the bigger bills
You might well be paying some of your bigger annual bills monthly already, such as car insurance. But there will be other yearly expenses that need to be factored into your month-by-month spending, so that you can save for them.
For example, your car’s MOT and servicing, or a holiday if you’re taking one. Work out how much you need to save to meet these expenses without cutting into your bill money and put that aside as well.
Work out your priorities
If you’re drawing up a budget because you have to stretch every penny then make sure you know which bills are a priority. If you know you can’t pay all your bills in any one month, don’t just pay whichever you receive first.
For example, your mortgage or rent and any secured lending should be prioritised above your phone bill.
Cut the waste
One of the reasons working out a budget can be so harrowing is that you’re suddenly confronted with how much money you waste. The example that’s done to death is a daily coffee at £1.50 – over 20 working days in a month that becomes £30.
Make your own coffee, take a packed lunch to work, cycle to the office instead of catching the bus… I know they are clichés but they really do add up. If you need to cut your spending then be ruthless with small luxuries you allow yourself.
[ See also: Ways to save money you haven’t already heard of]
Be ready to change
It can take a few months to really work out your budget, so make sure you regularly review it until it works for you.
If it hasn’t worked because it’s unrealistic (rather than because you’ve failed to stick to it) then don’t be afraid to amend it. If you’re overspending and can’t afford to, look at where you can cut back even further, but if you’re failing to save as much as you’d hoped, then have a serious think about whether your goal is achievable.
Set time aside
Managing your money successfully isn’t something you can do once or twice a year – it needs regular attention. Set aside at least an hour a month to check over your income and outgoings.
It’s helpful to arrange to pay all your bills on the same day each month, as this makes it simpler to check what’s gone out.
Coping with a shortfall
If you simply cannot make your sums add up then you need to act fast to avoid catastrophe. Work out where you can cut back and shop around for the best prices on your bills and groceries.
Make sure everyone in your home who earns is contributing. For example, if your adult children still live at home, ask them to pay something towards their costs. It doesn’t have to be market-rate rent, but it’s perfectly fair to ask for some help with the bills.
If you still can’t balance your books then see if you can increase your income. Consider taking on a lodger or working a few extra hours, and make sure you’re getting all the benefits you’re entitled to.