One of the techniques I’ve read about when trying to pick up some good budgeting techniques is Piggybanking. The concept is fairly basic, you take some money from your main account every month and put it into a piggy bank. With the help of online banking and some helpful guides from www.MoneySavingExpert.com, this has become a lot easier to do than it once was.
Before you start on piggybanking you should really take a look at what you’re spending your money on across the entire year, not just in the past month. Again, MoneySavingExpert has an excellent guide to help with this very thing. Once you’ve finished this you can see the areas where you’re spending the most money and what you need to cut down on. The problem for a lot of people are the big “one-off” spends, like Christmas, birthdays, TVs or anywhere you’re having trouble overspending. Anything which isn’t evenly distributed across the entire year like your rent, bills and food shops are. To help deal with this you need to look at how much you’re actually spending each year in these categories and decide on a yearly limit for them.
When you have the numbers sorted out, you’ll need to create several online “piggybanks” in whatever form your bank allows (e-savers accounts tend to work well), then at the start of each month you transfer a set amount into each of these accounts each month, which would over the course of the year match your target spending limit. Then when you decide that you want a new, bigger TV you first look at how much money you have available and decide on what you can buy that fits within your limits, instead of how to afford to buy the largest 4K resolution TV available. It also helps you set aside all the cash you need for birthdays, so rather than spending £10 in January, nothing in February, then £30 in March you look at how much you’ll spend across the entire year and put 1/12 of that each month. So if you add it up and you spend £120 on presents throughout the year you know that if you put £12 aside each month you’ll have enough to cover you for the entire year without it affecting the rest of the month’s spending. If you’re doing this through an online bank then it ends up being fairly trivial to set up a number of debits to transfer the money into each piggybank at the start of each month, leaving you with just one bank balance to keep an eye on for general day-to-day spending.
Like all methods to help you budget and cut spending, it’s not the perfect solution to all your financial woes, and it won’t help you if you don’t make the effort to keep costs down. But combined with other techniques it certainly helps make the process a lot easier.