I’m not a fan of the word budget so I take a far looser approach to budgeting which is far simpler, less stressful and easy to stick to. It’s based on a simple premise; save to spend.
So what’s wrong with a budget in the first place?
For me? Not least the awareness of my parents meticulously accounting for every penny down to £0.00 or the memory of the monotone, red-bag clutching yearly budget broadcast as a child. This evolved toward budget-phobia as I single-handedly raised my eldest on a low income where every budget ended in the red, whilst I weighed up whether to rob Peter to pay Paul or just hide from them both.
But mainly it’s because the term ‘being on a budget’ feels restrictive, rooted in fear and reiterates the silent, but powerful, message that ‘ if I don’t do this, the money will run out.’ And if prophecy’s are self-fulfilling then that is one prophecy I am unwilling to fulfil.
What is Saving to Spend?
Sounds counter intuitive doesn’t it? We spend and we save, two separate things. No, we save in order to spend at a later date, that is key. And that spending needs to be given both a purpose and a timeframe.
To do this you’ll need one current account, one savings account and one investment platform, all with online banking or easy access via an App.
Treat your Current account as space to exchange income for outgoings. All income whether salary, bonus, interest, rent, benefits, anything and everything comes in here.
Keep the right amount to cover your monthly direct debits, just the essentials, mortgage, car, bills, debt repayments. A quick sanity check to cancel any you don’t need and calculate the total is all that’s needed.
Immediately move the remainder over into your Savings account. This is why a banking app works better than a high street branch so you can regularly move money easily between the two.
Next, assign your savings into three categories; Spend today, Spend tomorrow and Spend towards. The amount you assign to each will be based on your goals and we’ll visit goal setting another time.
Save to Spend Today
This is your monthly allowance for things you love, food, hobbies, birthdays, gifting. This is for very short term, regular spending goals. You keep this in cash as this is the cash flow over the next month or two.
The physical act of putting this into your savings account creates space and time for you to sense check – do I really need or want to buy that? Transfer it to your current account when you do.
When it’s gone it is gone. Don’t dip into the other savings until it’s their time.
Save to Spend Tomorrow
These are saving for the bigger goals that you may need in the next 6-24 months. It might be a family holiday, home improvements or emergencies. This is still in cash as you may need or want to spend it soon. When the time comes, repeat your sense-check and transfer it back to your current account.
You can change how much you save into this space when you have hit your saving target or when you’ve chosen to spend some.
Personally I love Starling Bank for this as it shows your total savings and allows you to create spaces, set a name, a target amount and a date for your money goals. There are others out there too so choose one which works for you.
Save to Spend Towards…
This becomes your future spend and can include your Pension, ISAs and General Investments for longer term dream goals. This can be invested so you’ll move some each month into your investment platform and leave it there so you can potentially benefit from investment growth. You won’t plan to spend it for 6-24 years, this is your future income and that day will come.
Investing does carry a risk of loss to your original investment but this isn’t a reason not to do it and this is why you only invest what you won’t need to spend for many years. Next week I’ll share with you how to get started with investments or if you’re really not sure then contact a regulated financial adviser.
Saving to spend is so much less stressful, complex and dare I say boring as ‘budgeting’. It creates time and space to consider ‘do I really want that’ and enjoy spending with intention as well as the chance to save for future plans.
It gives all the money coming in and out a purpose, after all, a budget is simply a spending plan.