At the start of 2016, when we were all busy trying to stick to those New Year financial resolutions, reports appeared in the media that could throw light on why many of us struggle to keep on top of our money. A survey carried out for the banking group Santander revealed that Brits underestimate what we spend on our household bills by around £1,500 a year. That’s a pretty substantial margin of error. Perhaps it’s a symptom of just how much many of our regular payments have gone up in recent times but it would seem that very few of us really understand what our annual outgoings are – and that’s the first step on the road to bad budgeting.
The survey says…
The Santander survey highlighted the misconceptions many of us seem to have about how much it costs to meet our annual household bills for council tax, TV, utilities, broadband and phone. While an Office for National Statistics Living Costs and Food Survey indicated that the average Brit thought they spent somewhere around £3,987 on annual bills in 2015 (still a pretty high figure), the real cost – according to the Santander survey – was £1,459 more. When you break the costs down into components it’s easy to see how we are getting it wrong – for example, those surveyed for Santander believed that an annual TV, phone and broadband bundle was costing them around £514 but the actual cost was almost double at £1,100. Council tax came in as one of the biggest budgetary considerations for households in Britain, with the average annual bill around £1,121. However, the Santander survey revealed that those questioned believed the cost to be £754.
Accuracy is key to budgeting
The difference between perception and reality, as illustrated by the Santander survey, is one of the main reasons why many of us struggle to budget. Perhaps we find it difficult to understand what our annual bills are, maybe we don’t really want to know how much things actually cost, or perhaps we just don’t have time to check. Whatever the reason for the lack of knowledge, it’s clear that many of us would benefit from taking the time to make sure we know exactly what our annual bill totals are. Good budgeting is essential for healthy money management, from making sure you meet loan repayments or cover your rent or mortgage every month, to putting aside savings for holidays, homes or debt repayment. Without an accurate set of figures to work from it’s almost impossible to know that your budgeting is accurate – if it’s not accurate then you may as well not be doing it at all.
Some tips for accurate budgeting
If you want to avoid being one of those Britons caught out by bad budgeting then we’ve got a few tips to get you on the right track:
1. Don’t use last year’s estimates for this year’s bills – get new figures every year.
2. If you want to make sure your budgeting is 100% accurate and up to date then do a monthly budget from one month to the next using actual bill payments made as a benchmark.
3. Even if you have been with the same provider for years, look around and make sure you’re getting the best deal. You’ll also need to regularly review the payments being taken to make sure they haven’t crept up from the figure you were given when you first opened the account – if that’s the figure you’re using for your budgeting then no wonder it’s off.
4. Always round up, rather than down, when dealing with estimated figures – it’s better to be left with extra in your budget, rather than a shortfall.
5. Check in with your bank account regularly. Whether you do this daily online, or via an app, or you go into a local branch and get a bank statement, good budgeting means knowing what’s coming out of your account, and when. If you don’t look at your finances for a whole year then you’ll have no idea about the size of the payments being taken or what something actually costs you per year.
6. Use a budgeting app – these clever applications for smart phones can help you keep an eye on what’s coming in and going out and allow you to set reminders to check certain payments.
7. Pay manually. Although direct debit payments are very convenient, if you really can’t keep track of your bill payments then switch to making them manually at the post office or bank so you know exactly what is being paid, and when.
Do remember that underestimating your expenses when planning your budget could lead to you running out of cash and feeling forced to borrow to bridge the gap. Then you’ll incur interest charges too. Far better that you budget properly and stay in control of your finances.For information about borrowing options take a look at the Solution Loans website.
Alex Hartley is a keen advocate of improving personal finance skills. She's worked at Solution Loans since 2014 and written hundreds of articles about how people can manage their money better. Her interest in personal finance goes way back to...Read more about Alex Hartley