New Year - New Budget

A new year brings a new opportunity to budget and that’s just what I have been doing. This year it’s been easier for me to set a budget as I tracked my spending in 2007 against the budget I had set at the beginning of the year so I had a good baseline to start from. However it looks like inflation is going to drive many of my costs up in 2008 adding a lot of uncertainty into my figures.

The first thing to do was review how I had done in 2007. My original budget had predicted that my income would equal my expenses. I just missed this target by spending £40 more than I earned, not a huge amount but still an overspend nonetheless. It becomes more interesting when I drill in to the detail as my income was actually far higher than I had expected hiding some significant overspends on my electricity bills, clothes, gadgets (see an earlier post about my gadget addiction), gifts, days out and misc. I’ll explain a bit more about each of these categories in order of overspend.

The largest overspend was misc and I can already here you asking ‘what is that?’. One of the rules of budgeting according to Martin Lewis is to ensure items go into the correct column and I am normally quite good at this so I never had a misc budget. But over the year I dumped costs here that I didn’t know where else to put, so every cost here was an overspend, all £1038 of it. To make things worse I only know what £240 of this is, so I have spent £798 and I have no idea where! That’s scary and something I don’t plan to repeat in 2008.

Another big overspend was on clothes where I spent a massive £1603 in a year against a measly budget of £600. I knew I had spent a lot as I lost 2 stone throughout the year which basically meant I had to replace everything in my wardrobe for the second year in a row due to weight loss. Obviously it’s great that I am losing so much weight but the disappointing thing is how much of this money was wasted on buying clothes of the wrong size and not returning them (most of them went to charity shops, although some were listed on eBay).

I spent £918 more on days out (includes football tickets, gig tickets etc) and £475 more on gifts than I had budgeted. In hindsight both budgets were far too low and will be increased to more realistic levels in 2008.

Compared to the big overspends described so far being £86 overspent on electric bills doesn’t sound significant but this wasn’t an issue with the budget I had set, nor did I use a lot more electricity last year (despite my many new gadget purchases!). No, this is simply a case of the price of electricity rising. And worse still its expected that electricity companies will hike up their prices by another 10-15% this month, or in other words I can expect my electricity bill to go up close to another £86 in 2008 (and that’s before we factor in any other price rises).

It’s not just my electricity bills that are rising quickly, petrol is up as a result of higher oil prices and increased fuel duty, food prices are on the way up for the first time in years and all this before I even find out what my council tax bill will be for the next financial year. Fortunately I rent so don’t have a mortgage to pay otherwise things could be far worse! With so many costs rising it’s vital that I track my spending carefully over the next couple of months so that I can take corrective action if my costs continue to rise.

If you are creating a budget for the very first time then there is a useful guide and budget planner here: http://www.moneysavingexpert.com/banking/Budget-planning