Understand Your Disposable Income

Whether you want to splurge, save or invest, you’ll first need to understand your financial standing. The first step to this is to look at your consistent outgoings. For example:

• Rent/mortgage payments
• Bills
• Insurance
• Credit commitments such as loans, car finance, credit card payments

You’ll then want to look at your fluctuating payments. These can be the ones that go out consistently but fluctuate in amount each month. For example:

• Food shopping
• Petrol
• Childcare
• Personal maintenance
• Savings

For these payment responsibilities, you’ll want to create a variable amount (on the generous side) to help ensure you have enough set-aside.

If you’re not sure which expenses you have going out regularly, check your banking app—and then once you have the amount, make sure you record the date that it’s going out too. You can do this on a piece of paper, an app, or a spreadsheet—it’s about finding a system which works for you. Personally, I use excel as the formulas take away the heavy grunt work of calculations!

Once you have your list of outgoings, add up your commitments and take the figure away from your net monthly income (the amount you receive after tax). This will give you an idea of what you have left to spend, otherwise known as your disposable income, aka your fun money! This is the money that you have left over to invest or spend on the things you’re lusting after—such as:

• Clothing
• Personal care
• Entertainment
• Dining
• Travel

Review Your Spending Habits

Once you know what your consistent, fluctuating and “fun money” habits are, you’ll be able to get a clear overview of how you spend your money. Understanding these patterns can help you to analyse your financial tendencies and better understand yourself. For example, I know that if I buy things spontaneously, I don’t get as much value out of them, as I may use them once or twice and get bored. But if I research an item and/or save for it, then I tend to make better purchasing decisions, investing in items that have longer wear or are more in line with my style.

Another example of this is spending spikes. I know that I tend to purchase skincare items every quarter, as that’s when they tend to run out. And so I always do a big haul and fill these up in one go. This tends to save me money as many shopping sites have better discounts for larger basket orders.

This is a spending spike that has personal value because for me skincare is something I know that I will always want. It makes me feel good about myself, I use it every day and night, and so it’s always factored into my spending budget. Because this is something I have been doing for years, I know how much I tend to spend on my skincare hauls, and can ensure I have enough set aside to be able to purchase when I feel it is needed. It’s a combination of spending, splurging and investment and shows that being on a budget doesn’t mean it has to be restrictive, or full of scarcity. Sometimes budgets are temporary so we can permanently have the things we love.

Plan For The Unexpected

Nothing sucks more than an unexpected expense. Whether it’s a forgotten-about birthday, anniversary (don’t worry, I won’t tell!) or a utility bill due to a breakdown. Unexpected expenses can eat into our financial comfort. But there is hope.

Sometimes budgeting, even just a small amount, can help alleviate the pressure when these things arise. For example, when I reviewed my expenses I saw that May and October were always the most expensive months for me and every year they would fill me with stress as my disposable income would deplete each month. But then I started saving small amounts each month to accommodate for this. The result was the same expenditure, but less pressure on my finances in certain months - which left me feeling much more positive and less stressed about my financial standing.

Change Your Mindset

The word budget can sound boring, extensive and restrictive. But it doesn’t have to be. Budgets can literally be whatever you want them to be—a budget, spending plan, finance list. Give it any name you want and instead of thinking it’s boring, look at it as empowering. Because budgeting helps you to keep your finances and goals organised, and having this clarity and understanding of your current situation, makes it easier to take into account and plan for your next one!

Stay Up To Date

And last, but certainly not least—if your wages, financial commitments or situation change, make sure your budget allocation and tracking are updated. Your budget should evolve as you, and your requirements, do—and staying up to date can help you keep on track with your financial goals!

Let me know your thoughts!