If you find your running out of money at the end of every month, or struggling not to spend more than you earn, then it might be a good idea to create a budget to help you manage your finances. If this seems daunting, or too much like hard work, don’t worry! We’ve put together an easy guide for you to follow, so you’ll be in control of your finances in no time.
The best place to start is to find out exactly what you’re spending money on. You may think you already have a good idea about this, but a lot of us underestimate how much we actually spend- especially on little things. Do you really know how much your morning lattes add up to over the course of the month? Try to keep a spending diary for at least 4 weeks, starting from your payday, so you can see where your wages are going. Doing so will help you identify what you are spending the most money on and where it might be easiest to cut back.
Once you have these expenses noted down, it will give you a better chance of accurately estimating what you might spend in the coming months.
Next comes the budget making! You could use an online budgeting tool or app such as this one from Citizen’s Advice, but using a spreadsheet or even just a piece of paper and a pen will do the trick. All you need are two columns; one for incomings and one for outgoings. In the incomings section, you should put your take- home salary, any benefits or child maintenance payments you receive, investments, interest on savings and any tax credits. In the outgoings column, you should put your fixed costs, which include; mortgage, rent, council tax, bills (water, electric, internet, mobile phone etc), any any insurance payments you make monthly. Next, add in all your variable expenses (the ones that change month to month). This will be things like groceries, childcare, petrol, entertainment, credit card payments and transport.
Once you’re done, you should have a sense of what you will receive and what you will spend in the coming months. From this, you should be able to tell if you’re going to have money left over at the end of each month, or if you’re going to need to cut back in some areas.
If it turns out you’re spending more than you earn, don’t worry! It can happen to all of us. Now you have your budget, you will be able to clearly see the areas you are spending a lot in, and start to consider where you could make spending cuts. First, start separating your ‘wants’ and ‘needs’ in your outgoings. For example, you may categorise broadband as a ‘need’, but a monthly trip to the cinema as a ‘want’. Here, it’s easy to see where you could making savings, but it may be more tricky in other areas.
Once you have gone through all the ‘wants’, you could have a look at your ‘needs’ and see if you could make any savings in those areas as well. For example, you could do a quick online comparison to see if your energy bills could be made cheaper by switching to a better provider. You also could see if you’re on a phone contract that suits your usage the best- do you actually use 1000 minutes a month? Could you benefit from a cheaper contract with less minutes?
Laying out all your costs like this can be a bit of a reality check for us, but it’s a good thing! Budgeting enables you to take back control of your finances, and work out how to save for goals such as a mortgage or a car. That’s if you stick to it of course…
If you do try to put together your own budget, let us know how you get on in the comments. As always, we are happy to answer any questions you might have.