“A budget is telling your money where to go instead of wondering where it went.”
Dave Ramsey
Why Budgeting Matters
Do you ever reach the end of the month and wonder where all your money went? Or even worse, not quite make it to the end of the month before wondering where your money went?! It’s never a nice feeling to have too much month left at the end of your money which is why I believe it’s so important to take control of your finances. It hasn’t always been easy, but developing a budgeting system has given me the freedom to live a life I love, even with a reduced income.
I’m not here to offer expert advice or promise that budgeting will make you rich. What I can share is how budgeting helps me feel in control. For me, budgeting isn’t about restrictions—it's about making intentional choices with my money to live the life I want.
A major requirement for me in establishing this new life of mine is to feel in control; of my time and my money. A recent discussion with friends who have also looked to make changes involving reduced income acknowledged what there is no escaping - when any of us decide we want to leave a job to improve our quality of life, the deciding factor is usually whether we can make it work financially. My gut reaction to this, as I’ve previously explained, is that I’ll find ways to make it work. However, to be able to do this it’s necessary to have a strong handle on your finances. You need to know them inside out to know what you’re actually working with before you can make any projections about how you’re going to manage a change in your financial situation.
Divide and Conquer! - The Benefits of Dedicated Accounts
As financial situations change, in a positive or a negative way, our finances can look increasingly complicated which is why I’ve opted for a budgeting method which allows me to know exactly what money is available for different areas of life. I couldn’t stand the notion of wanting to make a purchase but first of all having to work out how much money is due to come out of the account before the next pay day to know whether I could afford to make the purchase. This is why I’ve chosen to have dedicated accounts for different areas of spending. It started in our uni days when James and I had our first little flat together. Every week we used to put £30 into our “the food wallet” and that was what could be spent on food until the following week.
These days we’ve progressed to an actual bank account and I can’t imagine not working with a dedicated “Food Account”. I can see at a glance exactly how much money is left for the rest of the month and know it can all be spent on food shopping. Likewise, our “Family Spending” account is safe to go into because we know it’s not taking away funds which are needed for bills or food later in the month. Every month when payday comes, I send the appropriate amounts to each dedicated account and then I feel I can relax because every penny has been put to work in the correct location.
Getting Started
After years of budgeting this way, we have continually tweaked and found the way that works for us as a family. Now that it’s all set up it feels so easy! But setting up a budgeting system takes time and work, some trial and error, ongoing maintenance and commitment to keeping on top of it. The initial setup meant hours of combing through bank statements and bills to work out the appropriate amount to allocate to each account. Then there was the period of working out whether the numbers which looked great on paper (no fancy spreadsheet here I’m afraid!) were actually realistic. It might look great to have a substantial figure going into a savings account each month but not if the reality means living on beans on toast for the last week of every month.
With ongoing changes in income and outgoings, inflation and growing kids with changing financial needs, it’s essential to take time to monitor, analyse and iterate when necessary. The budgets allocated to each account ten, or even 2, years ago are no longer appropriate and there have been several modifications over the years. It’s a bit like a Rubiks Cube - changing one budget usually leads to adapting the rest.
Creating Positive Pounds
The beauty of budgeting for me is the removal of anxiety around spending. When money has been allocated to a particular “pot”, I feel I can spend that money on its intended purpose without worrying about whether I should save it for something else. It also minimises the need for decision making. If I want to plan a trip but the funds in my Travel Pot are low, the decision is made for me. The money in other accounts has its own job to do so there’s no moving it about willy nilly to suit my preference of the day. And I think that’s key. If you’re going to have a budget, you have to stick to it. If I were to start moving money between pots, the whole system would fall apart.
Every penny coming into our main account is immediately sent off to its own destination. When I listed all the different accounts and pots within accounts for the purposes of this article, I was quite shocked to realise that our income gets sent in 20 different directions! It might sound crazy and messy but it works for us. Eileen Adamson of Your Money Sorted refers to this as “creating Positive Pounds” - every pound has a job to do.
Our Dedicated Accounts
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Our Savings Accounts
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My Account
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Safety and Security
Including Savings accounts in my monthly budget is essential to enable us to be in a position to stump up for annual car services or unexpected expenses without causing other accounts to run short. The peace of mind I have throughout the year knowing that we are gradually saving money for Christmas means no panic (well, not about the finances at least!) in December and still being able to feed ourselves in January.
Pocket Money
A relatively new change to the organisation of our finances was the introduction of ‘pocket money’ for myself and my husband. Like many parents, spending money on ourselves was a luxury we didn’t indulge in very often. If I needed something for myself, I would always wait until the end of the month to see what was left in the Family Spending Account. Now, however, we each get pocket money just like the kids do and it’s up to us what we spend that money on. Needless to say, my own account is divided into several pots so that I can ensure I have money assigned to the things I value most in life.
Expert Advice
In terms of allocation proportion, there is a wealth of advice out there. A common budgeting method is the 50/30/20 rule which proposes allocating 50% of your income on needs, 30% on wants and 20% on savings and investments. Whether this is possible for you will depend very much upon not only your income but on what you consider to be needs and wants. Some may be willing to reduce wants in order to increase the amount they can save. However, Bill Perkins points out that at different stages in life, different percentages may be appropriate. For many of us, there will be stages in life where saving that recommended 20% of our income is not a realistic goal. As someone adjusting to reduced income, this was comforting!
Other financial experts such as Tiffany Aliche, The Budgetnista, are keen to promote the term “spending plan” rather than “budget”, a word many feel has connotations of restrictions.
Thanks to my budgeting system, I can say that finances are one area of life where I do feel in control. I know my accounts well and am always aware of whether spending in some needs to be reduced. Ensuring that each account is receiving the appropriate funds during times of change takes up time but I like to consider myself my own wee accountant in the business of designing a life I love! I’m quite happy to dedicate a day to keeping on top of finances every month and keeping an eye on them throughout the month has become second nature, made much easier by the evolution of banking apps. Finances are constantly evolving and while I would love to keep my arrangements as they are, they need to adjust as life changes.
Watching my children, in particular my daughter who is preparing to branch out on her own, master budgeting skills has brought me so much satisfaction. I wish I’d learned about finances earlier in life but being able to pass on what I’m learning now to my children makes it worthwhile.
Don’t be scared of the word “budget”! Call it a spending plan if you prefer, or a money method - it really doesn’t matter. The important thing is that you know what money you have and can make informed decisions about how to make that money work for you in the kind of life you aspire to live. I’ve shared links below so that you can check out the people and resources who have helped me.
Budgeting isn’t about what you can’t do—it’s about what you can do when you take control of your finances. What budgeting methods have worked for you? I’m always open to learning new tips on managing money so I’d love to hear some of your budgeting tips in the comments below.
If you'd like to learn more about budgeting, check out these links:
The Budgetnista Website in-depth tips on managing money including how to set up a budget from scratch
Get Good With Money by Tiffany Aliche - This book helped me to consider my financial habits and learn more about how to make my money work for me
50/30/20 Rule - Guidance from Lloyds bank on allocating money to Needs, Wants and Savings which is a great starting point when creating a budget
Die With Zero - Bill Perkins’ book and movement, “Die With Zero” which helped me consider how to use money effectively to enjoy life now while also creating some security for the future
Your Money Sorted - A financial website offering courses and resources, particularly aimed at teachers, but with advice that can help anyone improve their relationship with money.