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How To Budget

How to Budget your Finances

When you think of a budget, thoughts of governments and businesses may run through your mind. Budgets are like extended spending plans. They’re there to make sure you have enough money for the things you need and want while keeping you out of debt.

A personal budget offers you peace of mind about how much you’re spending every month and it also gives you a better idea of how much money you actually have to play around with.

Of course, you’ll need to meet all of your bills and your mortgage/rent, but once these have been paid, then you can start planning what to do with the rest of your money.

That could be getting yourself from debt, building up a rainy-day fund, or even saving for your next car or holiday. A budget gets you to map out your goals – you can focus on saving money and you become much more aware of and wiser in your spending. A budget means that you can keep track of your progress and how close you are to meeting your personal goals, whatever they may be.

Creating and managing your own budget means you:

  • Are less likely to end up in debt
  • Can afford unexpected expenses
  • Do not have to spend money you don’t have
  • Are more likely to have or develop a good credit rating
  • Are able to spot areas where you could make savings
  • Can save up to treat yourself in the future.


What do I need to do my budget?

Getting started with your budget couldn’t be simpler. The first thing you’ll need to do is find out exactly how much money your household is bringing home every month. This will be the combined income (after tax) of you, your spouse or live-in partner, and any other adults who you may share your finances with.

Once you have this figure, you’ll need to work out your outgoings. Note down exactly how much you spend each month on:

  • Your mortgage or rent,
  • Household bills,
  • Council tax,
  • Living costs (like groceries),
  • Any financial products (such as home and life insurance),
  • Loan repayments,
  • Travel (either petrol or public transport),
  • Education costs,
  • Clothing and other essentials,
  • Pets, and
  • Leisure (on things such as holidays, sports or restaurants).

You’ll also need to keep track of your everyday expenses in order to produce an accurate budget. If you don’t know what your average expenditure is off the top of your head, consider on one week noting down what you’re buying every time you spend money. Whether it’s a coffee here and there, a newspaper once a week or the occasional snack, these expenses build up.

Try to collect as much information as you can about your income and spending from your bills, payslips and bank statements. Keep an eye open for any proposed increases in your bills in the coming months to ensure your budget is prepared should the prices change.

Many choose to input all of this information into a spreadsheet, meaning you can easily update your budget if your income or outgoings go up or down. Using the right formulas, the spreadsheet will even update your calculations automatically.

If you don’t want to do this, the traditional method of getting it all down on paper works just as well. Try organising your expenses into categories, such as travel, home and food to get a better idea of where your money is going.

Once you know how much you spend in a month, you can start putting your budget into place.


Creating your budget

Putting a workable budget into place doesn’t have to be difficult. All you need to really do is work out how much is left of your income after all your essential outgoings have been paid for. This will help you plan your spending and stop yourself from living beyond your means.

This is a reasonably simple calculation once you know how much you need to keep aside. If you use a spreadsheet software to manage your budget, this is even easier.

Make sure you also account for an emergency fund in addition to your savings. It always helps to have money you can fall back on should the worst happen. Say your boiler breaks or you’re unable to work for a while, you won’t want to need to dip into your long-term savings in order to cover it.

Having three months’ worth of expenses put away for a rainy-day means you can ringfence your actual savings so you can reach your overall financial goal. Building up your emergency fund is the first big thing for many people when they start to properly budget.

Then, you’ll want to establish your saving goals.


Establishing a goal for your budget

Setting a target is one of the best ways to save money. A target gives you all the motivation you need to save and manage your money better. Start by sitting down and thinking of all the things you might want to save for and how long you think it might take to get there.

Once you have set aside an acceptable amount to cover any surprise expenses, you can focus on your overall target. It can help you to have both long-term and short-term goals that you would like to aim for.

Your short-term goals will be those you’re expecting to reach within the next three years. This could be for a holiday, the down payment on a car, or savings to draw on during maternity or paternity leave.

A long-term savings goal is usually for a much more substantial amount – like money for retirement, your child’s higher education, or the down payment on a house.

When you know what you’re aiming for, it makes saving money a much more rewarding process. No one likes tightening the purse strings but when you know that it is for a greater cause, it makes make sacrificing that daily latte a little easier.

Once you have your budget and goals set up, next plan out how much you can afford to save. If you can, try to put away 10 to 15% of your income into a savings account.

If your monthly expenses are high and you cannot afford to save this much each month, it might be time to try cut back on your monthly outgoings in order to make your money go further.


Prioritising your expenses

There are, of course, certain expenses that we can’t live without paying. Whether it’s your rent or mortgage payments, food, or travel to work, there is always some money that you can’t avoid spending.

Try to identify areas you are able to cut back on. Where can you buy those essential cheaper? Think carefully about what things you can live without.

These cutbacks could be as easy as making your own lunch at home or cancelling membership of that gym you never have time to use. You may also want to consider shopping at cheaper stores and only going out once a month instead of every other weekend in order to live comfortably within your budget.


Manage your finances against your budget

Try to think of your savings as an essential monthly expense just like you do with your food shopping. If you like, you can even set up a standing order from your current account to your savings account to ensure you put aside the amount stated in your budget every month.

Be sure to check your progress and to regularly update your budget as your income and outgoings change. As long as you watch what you spend and stay within your budget, your finances will become a lot easier to manage.

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