What Is a Budget?
A budget is an estimate of future income and expenses that is usually created and updated on a monthly, weekly or bi-weekly basis. Budgeting is necessary for controlling monthly spending, planning for life’s unexpected events, and financing large-ticket purchases without going into debt. Keeping track of your income and expenses doesn’t require you to be a math genius, and it doesn’t mean you can’t buy the things you want. It simply means that you will have more control over your finances because you will know where your money goes.
Budgeting For Large Expenses
While budgeting is an excellent tool for managing your finances, many people still believe it is worth the time investment. Budgeting is not just important for the regular expenses, it can also make a significant difference in funding larger and irregular items. A large upcoming expense can feel like a huge challenge if you are already living payday to payday. Planning for this regularly in your budget can help bring peace to your money matters.
Here are few steps to budgeting for large expenses:
1. Estimate how much is needed and how long you must save for it
When it comes to large purchases, such as a deposit for a house, funding a holiday or buying a car, the timings might be more flexible to fit around your budget. Having the total amount clear will help you decide how much to save regularly. Create a monthly savings category in your budget.
2. Subtract the amount you need to save from the number of months you have to save
This will give you the amount you need to set aside regularly. For example, if you want £1,500 for your holiday a year from now, you can put aside £150 a month for the next 10 months to fund that holiday. Once you have this figure, go through your budget and see how you can make room for it.
3. Consider making extra room in your budget
It could be difficult to include the cost of irregular large expenses in your current budget, especially if your budget is already tight. Look at your budget and see where you could reduce your expenses to save towards your purchase. It might be working to reduce your shopping bill, limiting the number of monthly takeaways or eating out. If there is not a lot of room to reduce expenses in your budget, it might be worth taking activities that brings in extra income. This could be picking up a flexible second job, like food delivery, or selling your unwanted items.
4. Decide where you want to keep your savings
You can use a cash envelope system to save for the purchase or a bank account. If you are using a bank account, it is useful to keep this separate from your regular account or any other savings. This will help reduce the temptation of dipping into it for other things and sabotaging your goal.
Saving for large expenses does not need to be complicated. Make sure the purchase is worth the time and money investment for it, plan well in advance wherever possible and consider creating extra income to help you reach your goal quicker.
This post is a guest submission from Yvette from Enjoy Budgeting. Enjoy Budgeting was created to help give busy mothers simple and effective tools to unlock their financial freedom.