Woo. I am obsessed with budgeting. And trust me, I've tried every sneak and tip and hint to help me improve even more. One of the best sneaks I did, was when interest rates were a bit better, I used to have a linked savings account to my current account. I would put everything in there, and just transfer the cost of every bill the day before it was due. I earned around 3% by doing that.
But budgeting an actual household budget is a bit more tricky. I often see people say stuff like: 'write down/track your expenses for 6 months first'. I personally have never done this, as it doesn't make sense to me. Surely the point of writing a budget is to see what you need, work out how much that costs per month, then try to stay within those figures? I guess I am more of a bottom-up investor/saver/budgeter, rather than a top-down one.
So for me, it just goes something like this
Annual Income - Annual Essential Expenses/12
The amount is what I HAVE to spend each month.
Why have I done annual expenses rather than monthly ones? Because some stuff just happens once a year, but I don't want to forget about it and then get a £230 bill for house insurance right before Christmas, or someone's birthday or something like that. So you need to think about these annual expenses (e.g. holiday, insurance payments, birthdays, etc.) and factor them in to your monthly budget, because you can save for them throughout the year then. It just makes life a bit easier, as you don't have to worry about how you're gonna pay your car insurance, because you've already saved for a year towards it.
Everything left over is prioritised. For example, maybe you have a lot of spare cash and a not very cheap mortgage, or maybe you're close to the end of your mortgage, so you can put extra into paying it off quickly. For us, our mortgage is really cheap, so we put our spare money into savings and investments.
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