Budgeting simply means planning your money to ensure the key things are paid for in order of priority.
This may be weekly, monthly, or yearly depending on what you are planning for. For most, it's monthly for no other reason than we get paid and billed monthly (for most things). Budgeting will help you to manage your regular income and your household outgoings.
But where do you start when it comes to budgeting? We’ve created our step-by-step guide below to help you to start taking control of your finances. To make things even easier for you, we've also got a monthly spending plan template that will do all of this maths for you.
1. List all sources of income
Write down everything that comes into your household, this includes; your salary, your partner’s salary, any benefits, and any pension or investment income. This should give you your total household income (normally per month).
2. List monthly outgoings
Write down all your outgoings. Looking at your bank statements can be a good way of reminding yourself of what direct debits you have going out.
Separate these bills and commitments into ‘must have’; such as mortgage, rent, household bills, food and basic travel, and ‘nice-to-have’ including; gym subscriptions, TV subscriptions, and luxury items.
This is a great opportunity to review and make sure that you are using everything you are paying for, see if you could cut costs on any of your bills, and also see if there are things you could spend your money on that would give you a greater sense of satisfaction.
3. List any other regular expenses
Next, have a look and see if there are other places where you spend your money that you haven’t covered in step 2 above, like those ‘extra’ spending habits you may have developed.
For example, buying take-away coffee, lunch or dinner, or those little trips to the shops that may be more frequent than you realise. These are the little things that you may forget as they are ‘small’ items that would not necessarily jump out on your bank statement or are not direct debits.
Again, looking back at your bank statement will jog your memory as to where your money is being spent with a quick tap, courtesy of contactless payments.
4. Add up all your sources of income and expenses
Add up all your income and then add up all your outgoings (‘must haves’, ‘nice-to-haves’ and ‘extras’ as separate figures).
5. Subtract your total outgoings from your total income
Hopefully there will be a balance left from your income, however small, which is the money you have left over to have fun with.
If you find your outgoings are higher than your income, or you find the balance is lower than you feel comfortable with, or you wish to increase it as you are saving towards something like a house deposit or car purchase, go back to your ‘nice-to-have’ and ‘extra’ outgoing lists.
Ask yourself where you can make savings;
Can you cut down on those take away coffees?
Have you checked you are on the best rate for your utilities?
Are you watching all the TV channels you are paying for?
Are you using the discounts available through your employer, such as the supermarket cards where you can save around 5% off your shopping?
Are you paying the lowest rate of interest on any existing debt?
If you feel there is no way you can trim your outgoings to bring them into what you can afford it is very likely that you are starting to build up debt and need guidance and support. Contact one of the non-profit debt charities as soon as possible, such as PayPlan and StepChange as detailed below.
We've got plenty more articles about budgeting: