By Paul, co-founder of energy price comparison company energyhelpline.com.

If you’re over 50 then you have less time to prepare for retirement than younger people and so you’ll need to make your money work as hard as possible so that your retirement can be as comfortable as possible.

If you have already retired you may need to make choices about how you spend your money. This is especially the case given the COVID-19 Lockdown which has led to declines in savings returns, reduced or non-existent dividend payments and reduced stock market values which may have a negative impact on income from pensions.

So, to make it easy, here are some tried and tested ways to establishing and sticking to a budget that works for your household.

Step 1 – Work out where you spend your money

This is easy. What format will work best? A digital spreadsheet? A notebook? Big lists list of outgoings on paper? Choose whatever medium is natural and easiest for you. Find the documentation that will help

• Bank statements
• Credit card statements
• Store card statements

Look through a minimum of the last three months to form a solid view.  If you have time look through the whole year.

Put what you believe to be your typical spend into simple categories. Here’s my suggestion:

• Home accommodation (mortgage or rent, council tax)
• Utilities (gas and electricity, phone, broadband, water)
• Insurance (car, home, life etc)
• Transport (Car, fuel, train tickets etc)
• Food and groceries
• Clothes
• Holidays
• Entertainments / socialising (Trips to pubs, restaurants, cinemas, gym etc)
• Savings
• Any other categories that reflect you own spending patterns

It’s always best to round up your spending to the next £5 as this will give you a little bit of “wriggle room” when you come to your new budget.

People often ask me how they should take account of ongoing cash expenditure and big lumpy spending such as holidays or annual payments for things like insurance which they have chosen to pay up front rather than by monthly direct debit.

For ongoing cash expenditure its best to keep a diary over a few weeks making sure you accurately write down how much you spend and what you buy. Make sure you don’t forget to record things or deliberately cheat!

For big lumpy expenditure you need to look back at your statements over a longer period of time and make sure you don’t miss anything. I then prefer to divide annual numbers into a monthly amount and round up again to the nearest £5.

Step 2 – Document your household income

This is usually easier than documenting your expenditure as most of us have fewer sources of income than types of spending!

Don’t miss anything out. Take account of

• Salary
• Bonus payments
• Pension incomes
• Property incomes
• Dividend payments
• Interest on savings

Step 3 – Decide your SMART budget goal

Unless you live alone this needs to be done together with your partner and possibly other household members. There is no point in trying to cut expenditure back drastically in one area if the rest of your household don’t agree.

For you to have undertaken the work from steps 1 and 2 you probably already knew that you wanted to make savings in your outgoings.

Now is the time to be honest and work out what you need your budget to deliver.

Work out the goal for your budget first. The actual savings you need to make comes later. A powerful goal will give you something to aim for – and something that you and your partner can align on.

Ideally make your goals SMART:

Specific

Measurable

Achievable

Realistic

Time based

Examples of SMART goals for budgeting include:

• Payoff my £10,000 credit card debt by April 2022
• Save £6,000 by June 2021 for a holiday
• Increase the amount we save by £200 per month from January

Once you are clear about your goal you can use this to keep focused and to stick to your new budget.

Step 4 – Develop a budget you can achieve

Pay less for the same things.

For services like gas and electricity, phone, broadband, car insurance, and home insurance use a price comparison service and switch to a cheaper deal.

Change your consumption habits by swapping to cheaper options such as own label products in supermarkets rather than more expensive brands. Sometimes buying in bulk is cheaper than repeat buying products more regularly in smaller amounts.

Tackle discretionary expenditure.

This is often dominated by those things that make life fun! It’s important that you agree planned changes to discretionary items with your partner so it allows you to live in a way that works for everyone.

Examples of savings that could be made to discretionary expenditure include reducing the number of times you eat out or drinking less alcohol each week.

Step 5 – Review every month

You might think you have done all of the hard work! But the budget will only work if you keep your eyes on your outgoings and make sure that you don’t become lax, spending more than you have set yourself.

Looking at your income and expenditure, working out your goal and setting a new household budget is meaningless without a regular monthly review. Each month you need to look at what you have spent and compare this to the budget. You may need to be extra disciplined to reign in any unnecessary spending that breaks the budget and will stop your goals being achieved.

Step 6 – Make sure you get better over time

You should get more practised watching your spending and making sure that you save where you had planned. If not, then be honest with yourself:

• Are you struggling because the new budget was too tough, and you can’t live within the spending limits? Or
• Are you being too lax, and you need to try harder?

If the budget really is too tight you should revisit it. Otherwise make sure you justify every item of expenditure until you are confident your spending habits have changed.