| Good morning, and welcome to another working week.
No-one said budgeting was easy. Just ask Rachel Reeves.
Last week, much was made of forecasting for the long-term, and of inflation and interest rates. Thankfully, the debate has moved on from how many pennies more a pint of beer will cost to what the Chancellor’s decisions mean for our financial futures. Great progress.
The implications of basic financial shifts can be tricky to forecast in the short-term, but become more predictable over a longer period.
A fall in interest rates makes borrowing money cheaper for companies, allowing them to grow and become more attractive investments. Consumers pay less each month on mortgages and credit card debt, affording greater financial flexibility. Higher rates mean the opposite, while higher inflation erodes our ability to spend or save.
Any Budget with a capital “B” is a big picture plan, but before heading to the pub step back and try to think about what any changes mean for you.
Budgeting properly is crucial, not only for Chancellors or chief financial officers of big companies, but for the rest of us, too, if we’re going to live our best possible lives. That’s something we’re always trying to help our clients do.
A budget is nothing more than a spending plan that outlines income, expenses and financial ambitions such as saving or paying off debt.
It allows us to get a handle on our money, and meet financial goals, both in the near-term and further down the road.
A budget helps to identify over-spending, and encourages us to put our money to work in the best possible way.
Tracking expenses and income shows how much can be saved.
Neither are they a stick with which to beat ourselves. Budgets are flexible, and should also include money earmarked for the fun stuff.
Because they give a clear picture of where our money is going and whether the books are being balanced, a good budget plan is also a great way to help manage the stress that comes when finances feel out of control.
One solid option is the 50/30/20 budget. Here, income after tax is allocated into three broad categories. Half is set aside for necessities, such as bills, food, housing and transport. A further 30% is then allocated to the fun stuff: entertainment, eating out or travel. That leaves 20% of our income that can be saved for the future or used to pay down debt.
Workable budget plans vary considerably from person to person, depending on their circumstances. What works for one person probably won’t work for another.
Taking advice from an expert is obviously something we’d strongly encourage.
Once you’ve identified where you want to be in the future, budgeting and expert advice can help you get there.
As always, thanks for listening.
Martin.
Martin Brown, managing partner at Continuum, was talking to Gary Parkinson, former financial journalist at The Times and BBC. |
