Taking stock of your finances: step two

A new broom

Christmas is a hectic time for many of us. Faced with the rush to buy presents, send cards, go to lunches and nights out, buy and cook Christmas dinner, we’re often left with little time left to manage the rest of our daily lives. 

But when January arrives, we get more time to ourselves again. Time to look ahead and make plans.

It doesn’t matter how young or old you are, good financial planning always starts with a budget. How can you understand what you can afford to spend – or save – without a thorough understanding of your income and expenditure?

  • List all of your income; employment income, profits from self-employment, dividends, bank account interest, rental income and so on. 

  • Then list all of your expenditure – down to the penny. This might require you to keep a diary for out-of-pocket spending, but only for a few weeks to ensure that you have captured a typical spending pattern. 

Examine your bank statements and the diary we’ve just mentioned, then jot everything down on a spreadsheet. Aviva has a budgeting tool  to help you do this. 

How to split down your expenditure

Recently-released government figures show the monthly spend for the average household in 2014. The chart below gives the high-level picture, but the government data is actually split into smaller components.  Within overall travel expenses, for example, there are costs for car purchase, car maintenance, fuel, rail fares etc.

In examining your own expenditure, you should aim to go into as much detail as possible too.

Average monthly household expenditure in 2014 (Source: Office for National statistics):  

Area of expenditure

Monthly spend

Housing (rent, mortgage, gas, electric, council tax, water)

£515.67

Transport (public and private)

£324.13

Recreation, holidays, culture

£298.13

Food and non-alcoholic drinks

£254.80

Restaurants and hotels

£184.17

Household goods

£153.40

Clothing and footwear

£102.70

Life assurance & pension contributions

£92.30

Insurances

£72.80

Communication

£67.17

Alcohol & tobacco

£53.30

Personal care

£49.83

Cash gifts

£45.50

Health

£30.77

Now read step 3:

Step1: set your financial goals

Step 2: a new broom

Step 3: cut your expenditure

Step 4: saving

 

AR01594  01/2016

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