The easiest way to understand your personal financial situation, is to write down the monthly incomings and outgoings of your household. If you have a partner and/or children you can choose to include their spending and earnings in the budget, to get a full picture of your financial health.
Important: This is a fast-changing situation. We will be updating this page with relevant information, as and when it’s available to us. Please send us an email via [email protected] if you can’t find the answer to your coronavirus-related questions in this guide (please note that we unfortunately won’t be able to respond to every email, but we will try our best).
Making a budget step-by-step
There are a few ways in which you can approach building your emergency budget. We will outline the steps you need to take to get to a clear picture of your financial health below:
- Monthly income - Write down your monthly incomings, including salary
- Monthly expenses - Write down your monthly outgoings, including bills
- Safety Net - Calculate the total amount of money you have available to fall back on if your monthly income/expenses might change.
- Comparing the sum of your monthly incomings to the total amount you are spending a month.
- Marking individual expenses as essential and understanding where you could stop or lower the amount you spend.
We also have a budgeting tool on our site that you're more than welcome to use. Click here to try out our budgeting tool, for free.
Write down what your current salary or paycheck is. This will help you find the starting point of your budget. Without knowing what’s coming in, you cannot decide what you’re allowed to spend to break-even or save money every month.
Monthly expenses will include two types of outgoings:
- Your fixed costs
- Your variable costs.
Start by listing all expenses you see happening every week or month, for example by logging into your online banking portal and finding out what direct debits you have set up.
Fixed costs would typically include your mortgage or monthly rent payments, insurance costs, energy and water bills, phone and internet charges, gym memberships, and subscription services like Netflix or Amazon Prime.
Variable costs would include money you spend on grocery shopping, eating out or ordering takeaway, hairdresser appointments, buying clothes or booking a holiday.
Safety net or total available cash
Once you’re aware of your monthly spending behavior and know what your paychecks amount to. It’s good to understand next what your rainy day fund looks like and add up any “assets” you may have.
Examples of your “assets” are cash in the bank at the end of the month, coins or notes in your piggy bank at home, and any savings you may have available. In addition, if you have a house or own a car or any luxury goods that you might be able to sell in case of an emergency, you might choose to add the value of these to your safety net amount.
Once you’re aware of the money you have available to you, you can see this as your rainy day fund. It’s generally recommended to have three times your monthly income available in savings, but many people won’t be able to save this type of money. And especially in a time of a world health pandemic, you will be one of the lucky ones if you do have such an amount of money available to you.
Comparing incomings and outgoings
Now that you’re aware of what’s coming in and going out every month, it’s time to add everything up and understand what you’re left with at the end of the month. There are 3 possible outcomes of adding up and comparing your income versus what you spend a month:
- You are in a net positive- you have money left at the end of the month which you can add to your savings
- You break-even at the end of the month, which means that you make exactly the amount of money that you spend.
- You are in a net negative- you don’t have enough income to cover the money you spend and find yourself dipping into an overdraft, your savings account or using a credit card every month.
Tip: If you realise that you need to or can make some changes to the amount you spend every month, now is the time to do it.
Making changes to your spending behaviour
If you realise that you need to or can make some changes to the amount you spend every month, it is important to write those down and make a ‘to do list’ for your household. In this time of coronavirus, what you earn or spend can change drastically. This is why it’s highly recommended to live within your means and lowering the amount you spend where possible. This will ensure that you can live through a few months of hardship if you have to.
Inez came on board in the Summer of 2019. Her main focus has been helping as many people as possible find our website through online marketing, writing content and partnership deals. She boasts 6 years of FinTech experience with other brands and has an in-depth knowledge of our customers.