To put it simply, budgeting is all about managing your money more effectively. It doesn’t need to be daunting and by having a monthly budget, you’ll have a clearer idea of what’s coming in and what’s going out.
Having a budget also doesn’t mean you have to deprive yourself. It just helps you know how you can manage paying for the essentials, reach your financial goals and have a bit left over so you can enjoy the things you like doing.
If you’re new to budgeting, follow these easy steps, which are designed to help you get started…
What are your ins and outs?
The first step is to get a clear view of everything that’s coming into your accounts weekly/monthly. Make a list of everything that comes into your accounts, so you’ll have a grand total of incomings. Remember to involve your partner too, if you share paying for things.
Then, make another list of all your fixed outgoings, which will cover essential things like mortgage payments, rent payments, childcare costs, mobile phone bills, credit card payments – to name but a few. Try to be honest too, don’t skip things or underestimate your spending.
At the end of this exercise you’ll have two totals – one for what’s coming in and one for what’s going out. Remember though, this is just a list of all essential payments that have to go out – we’ll come on to any additional spending shortly.
What’s your goal for the year?
Having a goal will help you stay motivated when budgeting. So, have a good think about what you want to achieve financially.
You may find you have short term and long term goals.
For example in the short term, you might want to buy your Mum a special present for her birthday, get a new kitchen or save for your family holiday in the summer. And longer term you might be aiming to get out of debt or save for a house deposit or retirement.
Think about these and consider how much you need to be putting aside a month to get to these goals. And once you’ve sorted this, make a note of these amounts.
What are your non-essentials?
We all have things we love doing and more often than not, these will cost money. So at this stage, it’s worth thinking about your non-essential spending and listing these.
This needs to include everything you spend money on regularly – it might be a takeaway coffee on your way to work, trips to the cinema, going to the pub and buying lunch. Again, try to be really honest when it comes to listing the costs.
Are you in the positive or the negative?
Once you’ve got to this stage you should have totals for:
- Essential outgoings
- Costs to put aside to reach your financial goals
- Non-essential/extra spending
Now you need to add up the totals for 2, 3 and 4 to see if it’s within your total incomings.
This is how you’ll know if your spending’s within budget. If it’s not, the place to start would be to look at the extra spending you’ve listed, as it’s here where you could start to cut back. For example, could you have one less coffee shop coffee a day? Or take a packed lunch to work?
Giving things a go
Once you’ve done all this and roughly know what your monthly budget is, it’s time to give things a go. Try it for a month, and see how you get on.
If you can, log all your extra spending too, as this will help you keep an eye on where your money’s going. Don’t beat yourself up if things don’t go completely to plan though. Everyone strays from budget sometimes, so if you do end up having an unplanned meal with a friend, don’t be too hard on yourself.
Review your budget every month as this will help you keep on track. By testing things to see how they go and learning from any teething problems, you can find the right balance.
Also, remember to keep a monthly check on your credit report and score. You can do this by logging in or signing up to Noddle.
By regularly checking your credit report you can make sure everything looks as it should do. It can also offer some motivation, especially if one of your goals is to become debt free. By being proactive with budgeting and taking more of a control of your financial matters, you should see your credit score begin to improve. So why not set yourself a challenge to see how much you can improve your score in a year?
Additional resources you might find helpful: