How to save money: 5 step process to budget like an accountant

Many of us aspire to be better with money. We’d love to know how to save money like our friends who always seem to have cash to burn.

We’d like to be able to save those pennies, reign in our spending and maybe even accumulate a nice little nest egg over the years. But, alas, it seems like it is not meant to be.

At the end of the month, the bank balance is looking pretty sorry for itself and all we can do is wait for that sweet, sweet payday and for the cycle to start all over again.

But being good with money isn’t a gift or talent. It isn’t a case of some people being capable of doing and others simply unequipped to do it. Being good with money — and good at saving it — is a skill. And skills can be learned.

If there is anyone that can claim the title of being the most skilled kind of saver, it is an accountant. Accountants train for years in the art of managing money and dedicate their lives to help people and businesses save.

What better mindset to get into, then, when looking at how to save money, than an accountant’s?

If you can learn to budget your personal finances like a chartered accountant budgets a business, you’ll have no problem putting money away for a rainy day. Here are some expert tips on how to make this dream and reality:

Step 1: Establish your net profitability

Before you can save, you need to work out how much money you actually have that is expendable. This means you must identify your net profitability; the amount of money you have after paying off all necessary expenditures.

Look at your monthly income, then all expenses you cannot avoid, like rent and bills, debt payments and food. This will help you establish your net profit.

Let’s say your income is £1600 a month, with expenses of £1100. You net profitability is £500.

Now you know your net profitability, you can work to balance your expenses and control your financial health. Accountants regularly do this when managing business finance.

If they didn’t know what money they had to use, how could they spend it without going overboard?

Step 2: How to save money by employing zero-sum budgeting

Zero-sum budgeting is a term used to a describe an extreme budgetary process employed by businesses at times of great financial strain.

The concept is simple.

You never accept a budget as gospel. The budget you used last month might not be the same as it was this month. At the start of every month, look at your net profit and look at your expenses. Establish what money will and can be spent, as well as where that money will go, based on performance last month and upcoming expenses.

Allocate budgets accordingly, repeating the process every payday, prioritising mandatory expenses and your desired savings over leisure and entertainment.

The idea is to never let an expense become a hindrance to your financial goals. For example, you may have allocated £200 to personal spending last month. Don’t just accept that again this month. Look at how feasible this is on this month’s paycheque. Look at how you did last month on this budget and establish how realistic the figure is.

Step 3: Create targeted spending accounts

Tracking expenditure is a challenging process. Not spending money when it is in your account can be even harder.

No business has one primary bank account through which all transactions are made. This would lead to confusion and utter bedlam. Working out exactly what was being spent and where would be a nightmare. Curbing overspending would be all but impossible.

Instead, when an accountant takes over the’ financial management of a business, they will establish a series of spending accounts, dependant on the role they have. For example, they’ll have an account for payroll, bills and utilities, supplies and business expenses.

This way, they can track exactly what goes in, exactly what comes out, and that there is no overspending.

You can apply the same logic to your personal finances.

If you establish accounts for different aspects of your spending — rent, food, leisure, savings — you can ensure money is used properly and that you don’t spend more than you should from one particular account.

Place the amounts of money you’ve established through your zero-sum budgeting process into the correct accounts and stick to them.

Step 4: Maintain accurate books

As we’ve already touched upon, good financial management is about one thing: control.

You must dictate how your money is spent. You must know where it is going and how much you have at all times. Losing sight of this control means things can spiral quickly.

If an accountant were to let things run away from them, the business would face mounting costs with no capital to back it up. If you were to let things get away from you, you may find your balance displaying £5.50 halfway into the month.  

So how do you maintain control? You track everything.

Creating even just a basic spreadsheet — although more complex software is available — allows you to input your income and track expenses against it. You can see exactly what money is going where.

If you maintain an accurate and up-to-date spreadsheet, you will always know how much money you have.

This also allows you to see the bigger picture. For example, a £2 coffee might seem like an innocuous expense, but after tracking just how many you’ve bought over the month, you may find your potential savings are taking more of a hit than you realised.

Step 5: Perform spending analysis

With zero-sum budgeting, you are always adjusting your budgets to fit your necessary expenses. But what if they weren’t as necessary as you thought?

Accountants often find that when they take over a business’ finances that the owners have become complacent in the money they spend. For example, they’ve been using the same resource supplier for years, paying them the same amount, without ever looking to see if they can get a better deal elsewhere.

Personal finances are prone to the same affliction.

Now is the time to analyse your expenditure and attempt to uncover places where you’re overspending. The obvious places to start are with bills and utilities, but even things like where you shop for groceries and your gym membership should be up for consideration.

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