Day to Day Budgeting
Understanding budgeting is important if you want to successfully manage your finances once you've left the Armed forces. It's the only way to gain - and stay - in control of your money. It means you can achieve all of your money goals, from something as simple as having money left at the end of the month to the more ambitious plan of owning a second home abroad.
Having complete control of your budget will allow you to see how much money you have coming in and how much is going out.
Short Term Savings
This can mean putting money aside for a short term goal such as a holiday, small home improvements or even to buy a new car. You will want to ensure that you get your money back in full when you need it, and one of the ways you can do this is to use a savings account with a Bank, Building Society, National Savings and Investments (NS&I) or a credit union.
There are also different types of account:
- Easy Access Savings account: you can pay in and withdraw cash whenever you want. Interest is usually variable and the highest-paying accounts tend to be online, postal or phone based.
- Fixed Term account: This may be suitable for those who have a lump sum to invest and can afford to tie it up for the full term. For example, if you choose a 3 year account, you cannot usually get your money back before the term is up. On the plus side, this type of account usually pays a higher rate of interest.
- Notice Account: If you have money to save but are not sure about whether or not you will need to withdraw it at any stage, you may wish to consider this type of account. When opening a Notice Account you will have to give a period of notice when you need your money back – this can be 30, 60 or 90 days for example.
- Regular Savings account: If you are saving gradually then you may want to consider accounts that are designed to accept regular savings. These can be deposited by direct debit, or cash and cheque deposits for example.
Longer Term Investing
When you hear the term 'investment' it's common to think of longer term commitments that will run for a few years. Examples include investing money to provide you with an extra income throughout retirement or setting aside a lump sum to be used in the future.
Savings accounts are a relatively safe place for your money, because you get the same amount that originally invested plus any interest gained. However the return on savings accounts tends to be low which means that your savings may not earn enough to offset the effect of inflation.
Any returns gained from investments are usually subject to taxation; however some ways of saving and investing have tax advantages which may improve the amount that you get in return. A Pension scheme, for example, works in this manner as does Individual Savings Accounts (ISA).
Golden Rules of Budgeting
Be honest: you'll be surprised how much everything adds up if you really think about how much you spend. Try writing everything down for a week - drinks with friends, magazines etc. - you'll soon see where your money goes.
Be realistic: you can only plan based on the money you know you have coming in and once your spending is under control. So don't be over ambitious with your plans. Be realistic and you're much more likely to succeed.
Be prepared to change: if you get to the end of every month and find you're living off credit cards, going over your overdraft limit, or struggling to pay bills, something needs to change. The good news is there are lots of small changes you can make that will add up to a much healthier budget.