Yesterday we looked at how to create and manage a Monthly Budget. Once you have worked that out on paper, you will have a rough idea of how much you have left to fund the Annual Budget. The extra stuff. The things that, if not budgeted for, can really bite you on the backside. Say the car needs a part, the kids have YET ANOTHER GROWTH SPURT (yes that called for capitals), or you want to get your hair cut, you need dental treatment, or new glasses because you accidentally sat on them, or the toddler thought it would be fun to play with them (!!)
What I do is write down all the things I may need money for over the course of a year, and make an educated guess at how much I will need for each thing. So for example, the ‘Car’ budget covers Tax, MOT, Service, and then a contingency, in case it needs fixing, or a new part.
Work out roughly how many pairs of shoes you and the children are likely to need over the year, and the same for clothes, haircuts etc. Here is an example of my list
Don’t underestimate how much you will need for the Birthdays budget. Not only does this need to include any of your childrens’ presents/parties/cake/party-bags etc, but also yours, your family members and (as I’ve discovered now that the boys are at school) children whose parties your children are invited to. It soon adds up!
It’s obviously up to you how much you set your budget at. We’ve just booked parties for our three boys, who all have birthdays within six weeks of each other (and my husband’s is in amongst them). They have been made aware that their party is instead of a big present, but I guess their friends and other family members will bring them gifts, so they don’t mind.
I have included a section for school trips, class photos (don’t feel you need to buy every.single.one. Am I a mean mummy?), after school clubs/swimming lessons/brownie subs etc if applicable. I’m hoping to include a section for ballet classes soon, for my little girl….she loves to twirl. Ooh, that rhymed!
The ‘Little Extras’ section: this is for those fiddly things that you don’t want to add on to the food shopping bill. For example, batteries, bulbs, mop heads, err…drain cleaner. You know the kind of things. My budget is about £35 a month. Sometimes I need to use all of this, and sometimes I don’t, and sometimes I go over. So it all balances out in the end.
And finally, the ‘Contingency’ section is for the completely unexpected. A little buffer, if you will. So say, for example, you need to make a claim on your home or car insurance, this could pay the excess for that.
Doing the Maths
So, when you finally have your figures worked out for each section for the year, you need to add them all together, and divide this amount by 12. This is the amount that you need to set aside each month for your Annual Budget fund.
Ok, now you might find that you’ve gone a bit overboard, and you don’t have enough left from your monthly budget to cover this amount. This is when you need to go back, and lower your limits in some of the Annual Budget sections a little bit. You may need to go back and do this a few times. I know I did. The first draft is usually the ideal amounts. The second and third drafts are more realistic.
Once you have a number that is doable for you, you will need to make sure that this gets set asside, or to use a bit of jargon ‘ring-fenced’ each month, without fail. Maybe even set up a standing order to another account. But make sure you transfer the money back to your current account, as and when you need/spend the money. If this is too much of a faff, and you want to stick with one account, you will need to be very disciplined at not spending the money designated for the Annual Budget. Discipline is a concept I have become familiar with these last few years.
Get yourself a Ringbinder, Foolscap folder or similar to keep your paperwork safe, together and easily accessible.
Clearly label a piece of paper for each section, with the budget for that section alongside. Then you can log what you spend, as you go along. Note the date, and give a brief description of what you bought. If you just put ‘clothes’, for example, it leaves too much room for confusion. Make sure you mark your receipts with a little tick or something when you have logged the information, so that you know it has been dealt with already.
Keep your receipts!
This is my receipt tin. All of them get put in there, then I regularly (regularly being once a week at least. If I leave it longer than this it is more difficult to keep track of, and becomes too stressful!) go through them, logging what I’ve spent on food, and keeping track of what I’ve spent from each section of the Annual Budget.
So, If you bought some clothes or make up, or some batteries, for example when you went food shopping, deduct the cost of these from the receipt and make a note of them, to find out how much you spent on groceries.
It is important to make a note of what you have spent on food, as it helps avoid overspending, or forgetting that you spent the money. (Another important reason to keep the receipts!) Especially if you are working with a debit card, rather than cash. I personally prefer to use a card, so that if my other half has to pick some bits up on his way home, he can just use his card. Others prefer to use only cash, so that when it’s gone- it’s gone. It’s about finding what works best for you.
I will talk more about the Food Budget tomorrow. I’ll give you an example shopping list and meal list for a week or maybe even a fortnight. Depending on how adventurous I’m feeling!
I hope you found today’s Budget Action Plan instalment useful, and that I haven’t left anything out. Again, feel free to ask any questions. See you tomorrow. Thanks for reading!