In this budgeting series, I have been highlighting a different “slice” of the “money-pie” – a system that one of my followers coined for me. It has a number of other names – money-pots, money-buckets, but whatever you call it, its a similar idea. It is the principle of slicing you well-earned money up into different portions that each do a very different, but important job. If you want to apply the principle of “pay yourself first” to real life, then this is a way to do it.
It’s my favourite budgeting method, and takes a little bit of practice, but when you have the system nailed it’s so freeing!
The items include budgeting monthly for:
- Fun – 5-10%
- Giving/charity – 5-10%
- Saving for big things – 5-10%
- Emergency funds/paying off debt – 10%
- Investing – 10%
- Education – 5-10%
- Bills/essentials – 55-60%
The percentages are suggested proportions of how much money to allocate, but it depends purely on your circumstances as to what you prioritise. You may start off by not having a balance like this, but it is something to aim for.
As a reminder of what we’ve covered so far in the series:
This week I thought I’d write about paying a percentage of your income into one of the following “life-saving” items:
- Emergency fund
- Extra debt repayments
- 3-9 month f*** off fund
So what do I mean about this?
Lets tackle the emergency fund first
This is a sum of money set aside PURELY for emergencies – like the washing machine exploding and needing repair or replacement. I strongly recommend that before you move on to either of the other two items in the list, you get this put together first. £100 per month for 10 months will mean this is created in 1 year.
This is to avoid EVER needing a “payday” loan (one of my personal bug-bears)
Do whatever it takes – sell stuff, don’t buy clothes, don’t get your hair done as regularly or anything else you can think of to save money on and throw it all at an emergency fund. A fellow money blogger is doing a “raise £1000 online” before Christmas challenge. Why don’t you sign up and get the money together for your emergency fund!? The ideas she shares can be used any time of the year too!
Another thing you can do is download a savings app like plum. This little Facebook messenger robot automatically takes small amounts of money out of your account every few days in alignment of how you spend money. Its safe to use, and an absolutely brilliant tool. I have a review of it here. I can top it up anytime if I want, and the money is free to withdraw any time. Trust me, this app is the future of how we save!
Extra debt repayments
Once you have an emergency fund tucked away safely, you need to work on the other two things. Pick which one is the most priority for you, and work on it.
The debt snowball method is where you choose your smallest debt, pay it off as quickly as you can, then once its paid off, put your minimum payments towards the next debt and so on. To get this kicked off, you need to free up some money to put towards the first debt IN ADDITION to the minimum repayment. I have an e-book on this you can download for free here.
3-9 month F*** fund
Once the emergency fund and debt is paid off, then you can tackle the fund that helps you to free yourself. This could be from work, a partner, or a dodgy landlord. Whatever it is, you never know when money like this will come in handy.
I wish that when I broke up with my ex I had money like this saved. It would have helped me to get back on my feet so much faster, without incurring so much debt!
The money you save is for the basics you need to get by every month. Food, shelter, utilities and transport to get to work. That’s it. If you decide to leave your job because your boss is an a-hole, then you can at least cover the basics until you figure out what to do.
It can also be a useful plug for those on maternity leave, so you can stay off for longer without worrying about money….just a thought.
How much to set aside?
For this item in the budget, setting aside 10% would be ideal. Now I have my emergency fund completed, I’m tackling my debt. I put £50 per month into my “debt repayment account” and when it reaches a point where I can pay my next debt off in full, I will pay it off with this. This is not 10% of my income, but it’s a start at least, and I will be adding more as I free more money up.
I am very happy to report that I have just paid off my DFS sofa which gives me £50 back in my pocket per month. That’s now £100 I can save towards paying off the next one, which by my estimate will be done in 6 months time. When that one is paid, I’ll have £187 per month back in my pocket which will go on paying off my final debt before I tackle my student loan and then mortgage.
Once the consumer debt is paid off, I won’t go so hard at paying down the student loan and mortgage, purely because I will then build up my f*** off fund. After this, I’ll then go for the student loan and the mortgage.
It’s a matter of priority, and for me, the interest rates of my student loan and mortgage are not high enough to worry too much about getting these paid off quickly. The credit cards and loans however are, and this is currently my priority focus.
Where do I find extra money if I don’t have enough?
In addition to the £1000 challenge I linked you to above, you will need to go through your expenses to find stuff to save on in your day to day life. This may only be a short term thing to do, but it is worth it! I know you can do it! Happy treasure hunting!
How much can you free up to throw into this budget item?
And, if you’re in debt, how much will you have back in your pocket every month once your debt is paid off? What are you going to do with all your extra cash?
Good luck, and don’t forget to join the free private facebook group to share your wins and worries!
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