Finance

Budgeting Is Key to Avoiding Big Unforseen Bills – Managing Your Personal Finances

I’ve learnt over the years from personal experience that budgeting is the key to managing large and painful household bills.

We’ve all had them haven’t we? The boiler breaks down and is beyond economical repair, your car goes in for a service, they find stuff wrong with it, and you’ve now got a large bill that you weren’t expecting, and more importantly can’t afford. And yet you have to pay it anyway don’t you? There is no choice. That’s why it feels painful and you can’t help but feel emotional about it.

However there is a way of managing this. Of making it less or even completely emotion free. And it’s something you can do easily – very easily.

Budgeting is extremely easy to set up, and very effective. Of course, it doesn’t make the bill go away, but now you can afford it, so you pay it and move on.

Let’s take your car as an example. All you do is sit down one evening or weekend afternoon and look back at what it has cost you to run over the last 12 months. And the categories are easy really. If you’re in the UK, it’s gonna be MOT, road tax, insurance, servicing and repairs. You could include fuel as that is a cost of course, but I don’t bother as you pay for this in smaller continuous amounts in any case. My formula also excludes depreciation, which if you have a fairly modern car is likely to be the biggest cost of all. So if you want to be HIGHLY ORGANISED you may want to include that too. However back to my example.

Let’s say your bills (MOT, tax, insurance, servicing and repairs) over the last 12 months comes to £1,800. Simply divide that by 12 and that is what it is costing you to run your car every month – £150. That it what you want to set aside out of your monthly pay every month. I suggest setting up a new savings account and direct transfer every month. That way you haven’t got to think about it. You are saving automatically.

Then of course, when the bill comes in for £472, you simply pay it, and transfer the same amount out of your savings back into your current account to top it back up. Easy huh?

Admittedly it doesn’t mean you spend less, but it really makes it much easier to manage. You could of course have separate pots for different outgoings: car, domestic repairs, even saving for holidays. It means you live within your means more readily and it takes the headache out of big ‘unexpected’ bills.

Weaknesses of the system: none as far as I can see. OK, so you’re a little poorer each month, but in the end it means your finances are more balanced. What happens after 3 months when you’ve now saved up £450, but you get that bill for £472 – you haven’t got enough. So what? You are only £22 short. Doing it the previous way, you were £472 short. Which is better?!

So get budgeting, set up new savings accounts and take the emotion and stress out of handling big bills.

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