The Beginner’s Guide to Budgeting

It’s 2022. Who can still not believe it? 2021 was a whirlwind of lockdown followed by a soft reopening followed by a full reopening, but yet in all the months of enjoying the leisurely activities that were once sworn off, there was an impending fear that another lockdown was to arrive. ‘Brunch then cinema then dinner then club? Count me in. Sure the next lockdown is coming! A gig then a night out? Wow it almost feels like BC! (before corona)’ In all the excitement whipped up, sure didn’t we have a ball, but the only areas worse off from that swell ol’ time (aside from our heads thanks to a few painful hangovers) were our pockets.

Yes, it’s hard to remember how costly all these fun outings are and sure look, if you have to dip into the overdraft or whack it on the credit card, it’s not the end of the world is it? Except after a while, that built up and all of a sudden it was Christmas. The absolute cherry on top of costly events! After such a tough year who could blame anyone for spending in the excess and lapping up all the fun while they possibly could?

Except now we’re well into 2022… And the same adjectives could be used for your bank balance. With new year, new me plastered everywhere you look it’s such a crap feeling to start the year with sweet f all to your name and it can feel overwhelming to try to build back from it. But it doesn’t have to seem so tough! Whether you’re looking to save money in the long term or simply get your finances looking fitter after that whopper of a Crimbo then we’re here to help.

Kel Galavan, money coach (@mrssmartmoneyhq) is well versed in saving money and is on hand to break down those initial intimidating steps of budgeting. How do we kick off the big bad budget, I ask her.

“The first step is to track your spending before you try to change things around. Find out where you are before you decide where to go.”

Seeing where your money is coming in and where it’s going is essential, and whatever way works for you to work this out, says Kel.

As someone who loves to save wherever possible, when I’ve heard of traditional budgeting, there are a few rules I’ve come across, the most common being the 50/30/20 rule. This is a budgeting rule that allows you to spend 50% of your income on your needs, like your bills, rent or mortgage, 30% on your wants, so your clothes or that pair of flashy runners! And then save the other 20%. There’s also the 70/20/10 rule of budgeting where you can separate your wages into three categories. Under this rule, 70% of your income goes to monthly bills and everyday spending, 20% goes to saving and investing and 10% goes to debt repayment or paying off credit.

But as Kel is the budgeting expert, is there a rule she specifically advocates for? “I would be a fan of zero sum budgeting. Every month you start off with the equivalent of zero, if you get paid the first of the month and your money comes into your account, your rent or mortgage goes out, your bills or food will go out, and the day before payday you have 0 in your account, if you have extra left you put that into savings. So then the next time you’re about to be paid, it gives you a clear idea of what you can save. It makes sure every euro has a job and you start every month fresh,” says Kel.

Budgeting rules seem straightforward but with Ireland’s housing and rental crisis, saving can seem harder than ever. A 2021 study by the Residential Tenancies Board found that tenants are paying on average 36 per cent of their net income on rent, with half spending more than 30 percent of their take-home pay on rent. But feeling like you don’t earn enough to save doesn’t have to hold you back. After tracking your spending, no matter how big or small your salary is, you’ll spot leaks in your money, for instance you may see subscriptions you didn’t know you had.

“Many people in Ireland feel they don’t earn enough to save, but when you see those spends that don’t make sense to you, and plugging those, that often loosens up your money to start saving without majorly changing your lifestyle”, adds Kel.

Whether being bad with money is a trait may be inherited from your parents or your history with money has been dodgy, it can be really hard to start a clean slate and get your things in order. If a habit has followed you for life, it can be hard to break it. Is confidence linked to getting good with money? Our history can sometimes precede us, notes Kel.

“In the 80s we were in a recession, it was only when we joined the EU, we went from being super poor to suddenly we’d interest rates of two, three, four percent with tracker mortgages and lots of money injected into the country so our parents couldn’t teach us about money. As good as our parents were, they didn’t have skills in handling money so that’s hard to pass on. No one’s given us the handbook to do it”.

For people in debt or dying to pay off an overdraft, there’s also a way forward, Kel says. “If you’ve x amount of money, you’ve no savings but you do have debts, I’d say put some towards rainy day funds and then some extra to the debt.” While you’re paying off the debt you can be guaranteed something will go wrong, this way you can still keep going forward without blowing things out of the water and you go back to square one.

Just like any new habit you try to take up, going hardcore is never the answer. Budgeting is like a healthy eating lifestyle, it has to be suited to you and it has to make sense to your life. Making sure you have fun money to spend will ensure you stick with the budget, advises Kel. Deprivation won’t work, having some fun will make it easier to put money into savings. At the end of the day, it’s all about balance!

Quickfire budgeting lingo:

Rainy day fund – money you set aside for things inevitably going to go wrong e.g. car breaking down. It stops you leaning on credit because the money is already put aside

Cash envelopes – allocating exact amounts of money to envelopes so you aren’t tempted to just stick it on your card. If that envelope’s empty, it’s empty!

Sinking fund – saving once off or regularly for something you know is coming up e.g. a wedding or dental work. This stops you from leaning on credit also!

No spend day – a day you don’t spend money unless it’s on groceries or essential bills

Words by STELLAR Deputy Editor Rebecca Keane

• Budgeting
• life