Budgeting a Salary Increase

Budgeting for the future. This article will give an insight to the reader about how I plan for the future given that I know my income and roughly the area in which I want to live. I you would like a copy of the spreadsheet that I use just click on the picture below.

Motivations for creating a budget

I start my first proper full-job in September. I move to London in August and become an auditor in a large professional services firm. The starting salary is £27,150 and this needs to cover all my spending habits: rent, food, transport, bills and entertainment. This post contains a spreadsheet that outlines my predicted expenses for the coming year. I hope that you can gain an insight into how I plan for the future. You can follow my thought process below. Feel free to comment on anything that you disagree with.

The step-by-step budgeting guide

I started by writing out all the things that I could potentially spend on. As you can see I tried to include everything: Savings, pension contributions, taxes, utility bills, car, transport, food etc. I wrote down my monthly income based on my annual income.

I used an online tax calculator to figure out my tax and national insurance contributions.
I deducted a full company pension contribution of 4% from the net of tax income (£1749.5). I want to maximize this since the company matches whatever contributions that I make.

As for savings, I am aiming to save about 20% of my net of tax and of pension income each month. This will generate about £4000 a year in savings.

Rent will be my biggest expenditure next year. I am sharing with three others and we are looking for places in August. I've estimated a maximum monthly rental budget of £650 a month. I really don't want to be paying any more than this. The next year becomes a real struggle if I have to pay any more than this. I could only know this by creating a budget like this one. If you ever want to know how much to spend on a rental property you must complete a budget such as this one first. Otherwise, you're going in blind and could find yourself in a real mess.

I've recently negotiated a cheaper mobile contract for 12 months. The TV, internet and landline is taken from  a package deal that we will probably use as it is quite cheap at £25 per month.

As for council tax I had to guesstimate. Council tax ranges in bands depending on which area you are in and depending on the street. I pulled up the council tax rates for the general areas that my future housemates and I would be looking at. I took a higher than average estimate of about £2000 and divided that between 4 housemates over 12 months to produce the figure of £42 per month.

Car insurance is about £1000 per year, with petrol and parking at £100 per month since a lot of my travel will be by tube. The tube should cost me exactly £112.2 per month based on the journeys that I should be doing but of course I am trying to plan for other eventualities that could result in me having to pay extra for the tube as I leave the particular zones that I would usually take on a daily commute.

Gas, electricity and water are high-end estimates since we don't know exactly what they will be until we get to the property. I used a comparison website to try to make an accurate estimation (an oxymoron I know!)  and chose one of the mid-to-high end choices so as to overcompensate.

Food I have estimated at £100 per month. This is based on the fact that I have comfortably lived off about £20 per week whilst I was a student for 3 years. Of course this may be a little higher over the coming year.

This leaves me with about £200 per month to spend on going out, entertainment, restaurants, theatres, cabs etc. It actually isn't a lot for London, however it won't be too many years before a pay rise and I need to take the hit now for more enjoyment later.

Is there a better way to budget? Please let me know what you think of this in the comments box below. Alternatively if you just want to chat you can email or tweet me!

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SavvyFinancialLatina said...

Hello! I found your blog through Ninja's blog! SO glad to have another fellow pf blogger in the same stage as me. I am 22 and just starting out. I will start working soon, as well.

Mr. Moneybanks said...

Thanks a lot SavvyFinancialLatina. It's always nice to know that there's someone else out there that's just like you!

Justine said...

Good blog! Btw your annual water bill should read 500 not 50.

Unknown said...

super blog!but u need travel more ´=thanks

Mari said...

Raising wages is good look at this