Lots of people talk about “making a budget” as a starter point to getting on top of your finances. But what does that actually mean?
There are various approaches to budgeting: assessing your outgoings versus your income, tracking your spending, allocating pots of money to different categories of spending, setting financial goals, and saving or investing money.
Whichever budgeting method works for you, setting and sticking to a budget should mean you have more money left to invest.
The easyMoney innovative finance (IF) ISA has an annualised target return of 7.28% and all lending is secured by UK property, giving you peace of mind. You can invest up to £20,000 a year and the returns are tax-free. You can ask to withdraw your money at any time.
Look at your income and outgoings
Mortgage, rent, energy bills, mobile phones, gym memberships… do you know where your money is going each month? Go through your direct debits and bills and see exactly what you’re spending your money on.
Next look at your income. Most people will have a salary from their job but other income might be from a rental property, state benefits, or dividends from shares.
If you’re bringing in more than you’re spending each month, think about investing the difference into an easyMoney IF ISA.
Track your spending
Many people who think they don’t have money to save or invest may be frittering money away on a daily basis and not fully understanding where it’s going. For example, your daily trip to the coffee shop for a £3 latte actually adds up to more than £1,000 a year.
If you could survive without your daily caffeine fix, this money could be invested instead. The same goes for lots of things you don’t really need – unread magazine subscriptions, neglected Netflix accounts etc.
Make a note of the impulse or unnecessary purchases you resist and put the money you save in an easyMoney IF ISA. Your money works harder in an ISA – with easyMoney you can earn returns up to 7.28% tax-free.
The “envelope” budgeting method
Many reformed spendaholics swear by the “envelope” budgeting method. This method involves allocating your income into pots or envelopes of money and aiming to stick to your limit for each pot. In theory, you could actually do this by putting cash in actual envelopes but it’s much easier to use an app such as You Need A Budget (YNAB) or Good Budget.
For example, you might allocate £1,000 to your mortgage, £300 to groceries, £100 to trips to the pub etc. Whenever you spend money, it needs to come out of an ‘envelope’ and when the money in an envelope is gone, it’s gone. Don’t forget to have an envelope for investing into your easyMoney IF ISA.
Setting financial goals
Once you know where your money is going, and you have both debts and impulse spending under control, it’s easier to set financial goals.
What are you saving for – a house deposit, children’s university fees, a luxury retirement? Having a goal can make saving much easier. How about aiming to invest the full £20,000 annual ISA allowance into an easyMoney ISA?
You can open an easyMoney IF ISA at easymoney.com or by calling 020 3858 7269. You can either start from scratch or transfer from other stocks and shares of cash ISAs. The minimum investment is £1,000. Remember, as with all investing, your capital is at risk. All investors receive an easyMoney Plus card offering discounts at more than 100 of the UK’s biggest retailers.