Budgeting

Key to understanding what you can save, is what your budget is.

You can do your budget in a number of ways, from using software/apps, to writing them down manually in a Spreadsheet. Apps like "MoneyDashboard" are great but they only give a very limited breakdown, for example your current account. What about other savings accounts, your mortgage, or pensions, any other salary sacrifice schemes you're in?

If you're a visual kind of person like me, it is much better to create a visualisation of how much money you have coming in, and where it ends up. Below I have used a "Sankey" chart which shows me weighted columns of where each pot ends up.

Build your own here: http://sankeymatic.com/build/

My current budget

• Wage - I am lucky to have a very generous wage for the area of the country I live in

• Mortgage - My mortgage is low (thanks to overpaying at least 10% every year for the past 8 years!)

• Childcare - The biggest expenditure is Childcare. As you can imagine, for two kids in childcare this was always going to be the case. The key thing here is that I utilise Childcare Vouchers which comes up before I am taxed. This has an immediate uplift of either 32%/42% depending on whether you are basic/higher rate tax payer which is great (and a hell of a lot more generous than the newer Tax Free Childcare scheme). Kid1 starts school in September so this will have a major impact in my outgoings (although likely that we will have to start forking out for before/after school clubs!)

• Pension - My current pension contributions are 14% of my base wage, and my employer contributes 6%.

• Salary Sacrifice - By salary sacrificing as much as I can into both Childcare Vouchers, Pension and SIP Shares then this lowers my "Adjusted Net Income" that HMRC see. If I end up within the Basic Rate Tax bracket at the end of the tax year then me and my wife are still eligible to claim Child Benefit (the taper begins at 50k), as well as being able to receive £243 of childcare vouchers each month rather than just £123. All of this is on top of the obvious taxable benefits of paying into a pension, especially for those on a higher rate income with a student loan!

• Student Loan - I was on a Plan1 Loan and currently am in the final year of paying this loan off. Rather than coming off my PAYE payslip, I have a direct debit coming out of my bank account every month. This ends in October, so this together with the reduced Childcare costs will likely produce a lot more money to play with.

Feel free to scrutinise and ridicule this budget as I am always after ways of improving it!