Key tips for beginner budgeters

Budgeting can be a daunting prospect, but it’s essential to get it under control if you’re going to make the most of your finances. If you’re new to budgeting, it can seem like it’s impossible to know where to begin, however. So here are some key tips to help you get started, and to ensure you’re able to get a handle on your finances.

1. Know your income

Before you even begin thinking about budgeting, you have to know what your income is – this will give you the base figure that you can work with. If you have multiple income streams this can be difficult, but if you’re budgeting it’s essential that you have some reliable reference points. That means you should only take into account reliable, repeatable, and dependable income.

Your salary may be prone to rising and falling depending on certain factors, such as sales performance, etc. In this case, look at your earnings over the previous year and determine the lowest figure your salary has never fallen below – this will be the figure you can “guarantee”.

2. Track your outgoings

It sounds obvious, and it is, but to properly budget you need to know exactly what you spend. Take account of all your regular outgoings, such as your utility bills, car payments, rent/mortgage, loan repayments, groceries, etc. If you’re just starting to budget, don’t worry about what you spend on a coffee every now and then, focus on the main bills that are paid out on a weekly or monthly basis.

Some bills don’t occur monthly, but are semi-regular – such as TV license payment, for example, or paying to have your car serviced/MOT’d. If you know these costs are going to arise in a certain month, make them a part of your budget to ensure you can afford them. Think also about other things, such as a night out with friends you have planned, or a family birthday, and what you intend to spend.

3. Make clear notes

One of the most important tips when it comes to budgeting is to start making notes. You can do this the good old fashioned way with a piece of pen and paper, or you can turn to specialist budgeting apps, or use a spreadsheet on your computer (Google sheets is free and very robust) – whichever works best for you.

The idea is that you can get the figures out of your head and into a coherent list, so it’s easy for you to see exactly what you’re earning/spending. This will allow you to easily tot up totals, and see where the largest outgoings in your monthly budget are going to be. If you try and do it all in your head you will forget things, and you’ll ultimately become confused and frustrated.

4. Be honest, be blunt

This is your budget, nobody is going to look over your shoulder and judge you. It can be tempting to begin deliberately underestimating your monthly takeaway budget, or how much you spend on a Friday night out, but it’ll do you no good in terms of making a clear budget.

If your budget is going to work and is going to help you save money, it’s absolutely essential that you’re as honest as possible and use the correct figures. It might be uncomfortable to see how much you’re spending on certain things, but it just shows you where you can make savings.

5. Remember your float

Your float, or your buffer, is an amount of money you have at the end of each week or month that’s “unaccounted for” – you might think of it as spending money. It’s essential that when you’re budgeting you remember how unpredictable life can be, and that you can never predict what sort of bills/situations are going to be around the corner. You need to be prepared for them before they arrive – as otherwise, you are going to be searching around for money from friends and familiy, or via a short term loan when an emergency arises.

If at the end of your budget you have £5 free every month, that’s not going to be good enough and there’s more work to be done finding savings. You want to have at least £50 a month spare to account for spending extra on such things as bills, gas/electricity, food, fuel, clothes, etc.

6. Get started

This is a key tip – don’t procrastinate! It can be the easiest thing in the world to put off starting your budget until tomorrow, next week, or next month. But, before you know it next month has turned into next year, and you still don’t have your finances in order – so make a start now!

Budgeting always seems like such a bigger job than it actually is. Once you get going and start making sense of things, you’ll be amazed how quickly it all starts falling into place. You may also be surprised just how quickly you can put more of your money back into your pocket each month.

The advantages of renting a home

Owning a home is always most people’s lifelong dream. For one, it has many financial benefits, such as not having to pay monthly rent to line the pockets of someone else, or deal with a landlord. However, some potential homeowners prefer renting and see it as a more viable financial plan.

While both buying and renting have their financial advantages, not everyone is equipped or ready to own a home.

This article explores some of the reasons that renting can make good financial sense for you.

1. No maintenance or repair costs

Renting a home basically relieves you from all maintenance and repair obligations. Your landlord should be responsible for all maintenance, repairs, and improvements of the property. Therefore, should an appliance stop working or roof start leaking, then the landlord should be the one to get it fixed.

In contrast, homeowners are responsible for all maintenance, repairs, and renovation costs that are done on their properties. Depending on the nature of repairs being done, this can get quite costly.

2. No real estate taxes

This is perhaps one of the most significant benefits of renting a home. Renters never have to pay property taxes, which can be a hefty burden. Homeowners may need to fork out thousands annually in real estate taxes alone.

These taxes can be an even more significant burden for newly built, larger homes.

3. More flexibility on where to live

Renters have the freedom to live virtually anywhere they want as opposed to homeowners who are restricted to specific areas that they can afford. For instance, a home in the city can be doable for a renter while most home buyers might find it expensive.

Although renting can be expensive in areas with high home value, renters can always find a more affordable home to relocate to as opposed to a homeowner.

4. Flexibility to downsize

With the current economy, many people struggle just to make ends meet. Renting allows citizens the option to downgrade to more affordable living spaces at the end of their leases. The opportunity to downsize is especially vital for retirees looking for less costly, smaller living alternatives that match their budget.

As a homeowner, however, it’s a lot more challenging to try and break free of an expensive home due to the fees involved. In addition, relocating gets to be even more costly if the homeowner invested a lot of money in repairs and renovations. In most instances, even the selling price may not cover the total costs, making moving almost impossible.

5. Lower insurance costs

A homeowner must always maintain his/her home’s insurance policy. For renters, this is equivalent to a renter’s insurance policy. Only that renter’s insurance is much cheaper as it typically only needs to cover the renters contents and not the building/structure. It also covers almost everything owned by the renter, from furniture to computers and other valuables.

6. Access to amenities

Renters sometimes have access to amenities like in-ground pools, fitness centres, etc. that would otherwise be huge expenses and unattainable or unrealistic for the vast majority of us. Most of these amenities come standard to many mid-scale to upscale apartments at no additional charge to tenants.

In contrast, if a homeowner wants any one of these amenities, he/she must fork a lot of money for installation and maintenance.

7. No down payment

The upfront cost for renting a home is much friendlier than that of buying one. As a renter, you may only need to pay a security deposit that often equals one month’s rent, and you’re good to go.

When purchasing a home with a mortgage, however, you will be required to put down a sizable down payment, usually around 10% of the value of the house – tens of thousands of pounds!

For homeowners that don’t have the savings to meet the down payment requirements, renting might be a more suitable option.

8. Decreasing property value

The constant change in property value affects both renters and homeowners. But it affects homeowners more substantially. Renters hardly ever feel the pinch, if at all. Property value impacts the amount of property taxes that homeowners end up paying, the amount of mortgage, and more.

Renters are not always as adversely affected by rocky housing markets as homeowners and buyers.

9. Fixed rent amount

Renters pay fixed rent amounts for the span of their lease agreements. While landlords can raise rent with notice, a renter can budget more efficiently since you always know the amount of rent to pay.

On the other hand, mortgages with adjustable rates can fluctuate and lead to a significant increase in property taxes.

10. Lower utility costs

Most homes are typically larger than rented apartments. As a result, homes are more costly to heat. Even electricity and water bills are usually higher in homes compared to rentals.

Rental apartments typically have a more compact, efficient floor plan. This makes them more affordable and easier to heat and power compared to owned homes.

The takeaway

Owning a home comes with many benefits in the long run. However, renting might be a better alternative for those looking to avoid the hassles that come with homeownership. Of course, your preference depends on your lifestyle, financial situation, working environment, and other factors. Rent a home today and avoid the hassles of buying one.