Day 2 - Fixed Costs
Welcome back, budget babes (and bros, if there are any out there).
It’s time to pick up where we left off and revisit your finances. This one can be a bit high-focus, but it’ll feel good once you’ve got it all laid out.
You will need:
Access to your bank statements/transactions for the last 3 months
Access to emails
Your online banking
Your budget bible and a pen
Now it’s time to write down all of your weekly/monthly/annual payments, including rent/mortgage. Anything that’s a subscription, direct debit, standing order or regular due. This can take a bit of concentration because you’ll need to really rack your brain to make sure you think of everything.
Some you might forget are:
Insurances (even the little ones)
Car costs like MOT/Tax/Service/Registration
Home-based taxes and licences (council/TV/etc)
For bills that vary
I know, I know, you’re being that dorky kid in class that waves his arm around like it’s independent from the socket to tell the teacher there’s a mistake. What about bills that change each month/quarter?
Yeah, these are a bummer. But the best thing to do is go through your last few of that bill and come up with an average.
So, if your last 4 electricity bills were over the last 4 quarters:
TOTAL = 358.60 per year (4 quarters)
So your average bill would be 89.65 per quarter or 29.80 a month.
Side note – I’m deliberately not using currencies here, to make this as universal as possible!
Okay, this is important so listen up.
It’s time to add up all your expenses and break them down into manageable chunks, so you’re never left dipping into savings to pay a bill. Doing so can cause you to fall off the budgeting wagon and put you in a ‘fuck it’ mindset.
A bit like when you’re doing really well on a healthy eating plan and then decide to have a piece of cake. Within 16 minutes you’ve scoffed 4 Mars bars, a Venti Frappuccino and 3 family pizzas. If you’re left dipping into savings to pay bills, you feel like you’re not getting anywhere, and before you know it you’re overspending to fill the void.
The best way to do this is to add up 6 or 12 months worth of bills (even if it means taking a 3 month sample and multiplying it by 4).
Once you’ve got your annual spend, add 5-10% as a buffer. This will account for any extras, any gaps between pays, and any variances in your bills (like winter heating, for example).
Then, divide that total number by the number of times you are paid in a year.
So if you’re paid weekly, divide it by 52. If you’re paid monthly, divide it by 12...you get the idea. That amount is the amount you need to transfer from each pay to cover your bills and fixed costs.
Now, allocate a transaction account that will become your bills account – or set up a new one with a bank of your choice. Then, change all of your direct debits to come from that account. This might involve a bit of online chatting/phone calling/logging on, but it’s worth it in the end.
Then, make a note of the weekly/fortnightly/monthly amount that you’ll transfer to your bills account the moment your salary hits your account.
And boom – you’re done for Day 2. *does happy dance*