Part 1: Start Saving Small – How to plan your finances

With inflation reaching all time highs not seen for decades, it is now more important than ever to plan out your finances. As a result I have put together this to help those that are struggling to get visibility on their income and outgoings by sharing how I manage my own. I know for many this a huge task and causes a lot of stress so I have tried to make this as clear and easy for many. I will also be posting a video for those that prefer to follow along visually without reading. This can be a great way to check your payslips so you can be share you aren’t overpaying when you shouldn’t be.

All of the below is focussed on UK tax laws but the principals apply everywhere. None of this can be considered financial advice but this is how I manage my own budgets. If you want to make this a joint budget calculator with your partner you can copy the first 2 columns in the table below and enter each persons salary and tax bands though I find keeping separate budgets makes life easier overall.

The spreadsheet, explained below, is available here: https://docs.google.com/spreadsheets/d/159qN5FkvDbbBFEXynNjwZcta8ifzyIrT/edit?usp=sharing&ouid=100841825636158668949&rtpof=true&sd=true

You can download this by going to File -> Download. There are multiple options for file formats if you do not have Excel to use. OpenOffice is a free alternative to Microsoft Excel.

Snapshot of what a budget calculator would look like for someone who only needs to consider the lower tax bracket

The first block relates to salary. Where there are green boxes this just refers to an area to fill in yourself. As an example I put a salary of £26,000 annually before tax. The table below shows where your payslip information comes from and is important to understand where your money goes and how taxes work.

Salary / wagePut your annual income before tax into this cell
Basic Monthly / Basic PayThis is your salary divided by 12. What will appear on your monthly pay slips.
Hourly rateThis is important to understand exactly how much you get per hour. This can be a great way to budget yourself based on how many hours would I need to work to pay for something. This thinking really helps prevent wasting money by quickly working out if something is worth doing yourself rather than paying someone else (think DIY).
I have this as = salary wage cell / 52 / Hours worked per week
Tax AllowanceNot every country will have tax allowances so you should check your own countries tax rules, but in the UK there is a tax allowance on earnings. In 2021/2022 this is currently £12,570. Meaning you pay no tax on the first £12,570 you make. Every £1 you make above this gets taxed at the tax rate (currently 20%) until the next bracket is hit which this year is at £37,700.
Example: If you make £40,000 then you will not be taxed on the first £12,570; be taxed at 20% on the next £25,130 (taking you to £37,700 total); then taxed at 40% on the next £2300 (taking you to your £40k salary). The link is at the bottom of the page for the gov site to review each year as this changes.
Taxed onThis is the proportion of your salary a month that gets taxed by the income tax. In this case only the 20% tax on additional money over £12,570 applies. An additional formula applies here for anyone who makes over £37,700 a year which is included in a second link for a spreadsheet at the bottom of the page.
= Basic monthly – (Tax allowance / 12 (months)) – (any extras that come out before tax ie pension, student loan, cycle 2 work schemes etc which are covered below)
Tax PaidThis is the taxed on cell multiplied by the tax you pay on that income. In this case 20%.

=”Taxed on” cell value x 0.2
National insurance paidThis varies depending on tax year and in April 2022 will be increasing by another 1.25%. For 2021-2022 however this is similar to taxed on income. You do not get taxed on the first £797 per month but get taxed on additional income by 12% up to £4,189. Any additional income you make above £4,189 is taxed at 2% for National Insurance.

Example: You make £2000 a month before tax. You pay no National Insurance on £797 of that £2000. You then pay 12% on the remaining £1203 (2000-797) leaving you with a national insurance contribution of £144.36 (1203 x 0.12 (12% in decimal form)) each month.

Important: Using this method it really helps you understand the impact that government changes will have to your finances. If you take the 1.25% increase planned for April 2022 then in the example above your contribution would go from £144.36 a month to £159.40 a month. Leaving you short £180.45 over the next year.
PensionPension will of course depend on your workplace. I’ve estimated around 4% as this is quite typical for a base contribution. This comes out of pre tax salary so this is not taxed by income tax and as such can be a good place to store extra cash especially if you are moving into higher tax brackets. Speak with your employer to raise contribution amounts.

=Basic monthly x 0.04
Student LoanStudent loan is more complex depending on when you studied. The spreadsheet has a Plan 1 student loan in place. This means any income over £1,657 a month has 9% taken off as a repayment fee.
Plan 1 Example: If you make £2166.67 a month then you subtract (2166.67 – 1657) to give you 509.67. You then repay 9% of the 509.67 as your student loan giving you a repayment fee of £45.87 a month.
For Plan 2: The same applies as plan 1 however the threshold is now £2,274. In this case if you made £2166.67 a month you would not pay anything back in student loans.
For Plan 4: The threshold is now £2,083 however you now pay 15% back in student loans. So if you make £2166.67 a month then (2166.67 – 2083) gives you £83.67. So you then repay 15% of this leaving you with a student loan repayment of £12.55 a month.

PLAN 1 =(Basic monthly – 1657)*0.09
PLAN 2 =(Basic monthly – 2274)*0.09
PLAN 4 =(Basic monthly – 2038)*0.15

There are links at the bottom of the page where this information comes from as well as how to know which plan you are on.

It is important to check in April if the values have changed. It is also good to understand the impact that government changes have to your finances by using this template to update values.

The table below is a good summary for the 2021/2 tax year. Be aware this changes every April.

Screenshot of the Gov income tax details for 2021/2
Bills and budgets

The next 3 tables I use for planning outgoings ie bills, loans, insurances etc. I filled it out with some examples but of course this varies depending on you for example you might not own a car or house therefore car payments and insurances relating to these do not apply to you (yet!).

Starting with the left table; I use this for my fixed bills that I cannot just cancel (mortage/rent) or get rid of without being very risky (insurances). Most explain themselves. Things like a TV license are in here if you watch Freeview TV (in the UK) or subscribe to a TV package as these are legal requirements. I will likely do topics in the future on each item where good advice is available on bringing some of these costs down.

The most important topic in this left table is insurance. This is one of the most important ways to manage risk and prevent bankruptcy.

The middle table is what I use for Non-fixed bills and services. These are either fixed recurring, or annual, payments such as Netflix, Amazon Prime and Microsoft Office for example or they may be credit card debt that may vary each month. The services I have added are mostly nice to haves but depending on your circumstances could be cut out of your bills.

A good tip is to pay the annual fee instead of subscriptions including annual car insurance rather than the monthly payment as this avoids any added interest. So you can take the annual one time fee and divide by 12 and budget this into your monthly payments that way on renewal you have the money saved already.

The third table is arguably the most important one. This is where I add the topics I plan on budgeting for as explained below.

FoodI put quite a large amount in here for one person (if you have kids this may seem low) per month as it includes going out a couple times a month. This varies a lot but my personal spend is quite accurate now as I have been recording each month how much I spend so I can be confident (excluding events like christmas) how much I need each month.
Petrol / Diesel Unless you have an electric car then you will need to consider Petrol / Diesel budgets. This is usually quite predictable each month as filling your car is usually 2-3 times a month. In the future I may do a cost comparison of buying an electric car vs typical combustion engine car but this may take some time as there is a lot of variables to think about.
InvestingNOTE: If you do not have savings already it is a good idea to have 3 months salary saved up at an absolute minimum (or whatever you may need to survive 3 months) for emergencies before investing everything. The split between investing and saving is up to you but without good emergency savings you will be more at risk.

This is one of the critical steps to building savings. Typically most will store their money in the bank for bank interest however this interest rarely comes close to inflation which increases the price of goods and services each year. This means every year you may gain 1% in interest from your bank but if inflation is 5% for that year then you lost 4% of the money in your bank account (Potentially a similar thing to annual pay increases in your job).

Ideally 20% of your total monthly salary after tax, pensions and student loan should go into investments. This may be difficult for a lot of people but it is important to try to get as close as possible to this value. The example shows a 10% investment each month but even 10% a month will put you in the right direction to getting on top of your finances and building good habits even if it may be hard at first.

The easiest for most people will be having a stocks and shares ISA. This allows you to put money in (up to a certain annual amount) without being taxed on any profits you make. The easiest way, for a beginner, in these ISA accounts is picking reliable and safe ETFs or Mutual Funds (which are bundles of stocks around a specific topic such as S&P 500, technology, growth stocks, dividends etc) to invest in. These have very low entry requirements as you buy portions of shares rather than whole numbers (so you don’t need to have £1000 to buy one share of Tesla).

There are many investment types such as stocks, real estate, art, wine, classic cars etc so owning a wide range of these is preferred should big changes occur in certain investments (2008 real estate market crash for example). This is too big of a topic to cover in this post alone so hopefully I will be able to give more detail on these if there is demand for it.

The final cell in the bottom right just totals up these 3 columns to tell you how much of your salary each month will go to bills and services.

The final table is the one off costs and the “total left” value. The “total left” value comes from the totals from the first 2 columns regarding salary minus the total of the 3 centre tables for bills and budget. So in the above example this is £1672.44 – £1,589.36. Giving us the £83.08 left each month. This is where one off costs get accounted for such as needing some new clothes. The main focus of this cell is save whatever is remaining each month. If I don’t have to use this remaining money I won’t. In this case I will transfer this to a savings account as backup savings for important occasions / travel / date nights etc.

I would like to end this hoping you all manage to get through any difficulties you may have ahead. If this did help you out I really encourage you to share the information and help someone else you know. Helping someone else will always make both of you stronger in the long run and we need each other more than ever.

Later on I will put a post focussing on how to get rid of debt and what to prioritise. This is something I feel many people get wrong and they try to pay off the wrong debt first which only makes their situation worse. As well as a post regarding the importance of insurance.

For taxable allowance you can see this link for the government document https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past

To know what your student loan plan is see this link: https://www.gov.uk/repaying-your-student-loan/what-you-pay

To understand how much your student loan costs see this link: https://www.gov.uk/repaying-your-student-loan/what-you-pay

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