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The first step in taking control of your finances is to create a budget. It’s a great way to get a clear overview of the money you have coming in and going out, and what you have left over once you’ve considered all your key outgoings.
What is budget planning?
A budget plan takes into account any income (e.g. salary or benefits) and any expenses (e.g. mortgage, rent, bills).
Once you have a clear idea about what you’re actually spending, you can prioritise what you do with your money to make sure you’re spending within your means. You may even be able to find ways to save money, and to put money aside, either in case of an emergency or for future plans.
Why is budgeting important?
Without a proper budget you’ll be spending blind. At worst, this could result in overspending regularly and building up debt, or eating into savings just to keep up with your outgoings.
More positively, budgeting can help you to achieve your financial goals such as saving up to buy a home or paying off debt, or even saving for a special holiday.
Personal budget planning
To get to work on your own budget planning, set aside a good chunk of time to focus on the job in hand. You’ll also need copies of your bank statements, payslips, credit card statements and receipts for anything you usually pay for with cash. Be thorough about including all your expenses. As well as bills and food, this will include any money you spend on your family – like swimming lessons, clothes or child maintenance etc. It’s also worth thinking about your outgoings over the year and including costs such as your car’s MOT, Christmas, dental costs and summer holidays.
- Add up your income
Make sure you’ve included all your income – include any benefits, money from investments and self-employment, as well as your monthly salary after tax and other deductions.
- Calculate your essential outgoings
This could include your mortgage or rent, council tax, utility bill payments, groceries, childcare, insurance and travel. If you use your bank statements for the numbers, you’ll have the most accurate figures to work from. Be honest with yourself and make sure you’re including everything, including any money you put into savings. Once you have taken the total of your essential outgoings from your total income, you’ll be left with your disposable income for the month. Your disposable income is likely to finance your ‘luxuries’ such as going out, media subscriptions and hobbies.
- Create a budget you can stick to
Now you have a clear idea of exactly what you’re spending, you’ll be able to create a budget you can stick to. And if you need to, the obvious place you can cut back is on your disposable income spending.
- Consider budget planning tools
There are lots of ways to create a budget, from an Excel spreadsheet through to budgeting tools available online. Many banks have their own budget planning tools, as well as sites such as StepChange, MoneySavingExpert and MoneyHelper.
