Expert tips to structure budget going into the new year

Cost of living: Homeowner reveals she is having to sell her house

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The average annual energy bill is set to increase to £3,000 in April and interest rates are also predicted to go up again, increasing mortgage repayments. With these growing financial pressures and changes, it’s important for people to plan their finances carefully for the year ahead.

One method for budgeting is the 50/30/20 rule. The idea is to divide a person or family’s after-tax income into 50 percent going towards basic needs, 30 percent towards wants that are not essential, and 20 percent for savings, investments or reducing debts.

Sammie Ellard-King, founder of savings group Up the Gains, said the rule could be helpful for struggling Britons.

He said: “The 50/30/20 budgeting method can absolutely be applied during a cost of living crisis, I’d actually recommend it.

“It is very much just a guide though, so if you do need to adjust the percentages slightly to make sure other financial priorities are dealt with, that’s totally fine.

“I’d just recommend not forgetting the tools that help budgeting, because impulse spending can go through the roof once budgeting methods are ignored and can actually cause even more financial stress.”

He said people will see the difference if they reduce their 30 percent spending on non-essential wants.

He said: “In terms of tweaking the percentages, a lot of costs can be saved through cutting down the ‘nice to haves’ in the 30 percent section.

“This means whatever’s saved can be added to the 50 percent to make it more of a priority with bills rising across the board.

“For example, having one less night out per month can be added to the 50 percent section, making it more like 55/25/20 rather than the standard 50/30/20 process.

“Personally, I’d recommend cutting down the 30 percent bracket, rather than reducing the amount of savings as the 20 percent part ensures you can come out of the cost of living crisis knowing you’ve still saved money.”

Britons looking to gradually increase their savings may want to consider taking on the 1p savings challenge.

This involves putting aside one extra penny each day, starting with 1p on January 1, 2p on January 2, and so on.

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People have to keep up the challenge each day of the year and on December 31 they must put aside £3.65.

By the end of the year, in a non-leap year, a person will have put aside £667.95 to go towards their savings.

A third budgeting tip is for those who choose to do the challenge in reverse, putting aside £3.65 on January 1 and decreasing the amount by 1p each day.

Molly Mileham-Chappell, from MoneySavingExpert, said previously: “Part of the fun is that the challenge can take a fair bit of discipline.

“Even if you don’t stick to it to a tee, what’s really important here is that you’re thinking about saving and trying to set some money aside.

“You can make the challenge work for you – if you don’t use cash often, see if you can set the money aside using your online banking and vice versa. But remember, it’s usually best to pay off debts before you begin to save.”

People can put their penny savings in a piggy bank or a jar, so they can see the money adding up – but should be aware their money may not be protected should the worst happen.

Another option is to transfer the money through online banking, and the funds can then go into a savings account and earn interest.

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