The Basics of Budgeting
Budgeting is like dieting, but for your income and expenses - practice makes perfect! If you are new to budgeting, or want to take control of your monthly spending, here’s a simple guide on how to create a budget...
Step One: Pick a Budget Format
The first step in making a budget is choosing what medium you will use to create and manage it. Many opt for simple pen-and-paper, while others use programmes like Microsoft Excel or Google Sheets. If you’d like to keep a close eye on your expenditure, there are even some apps available for iPhone and Android users! Whatever you choose, make sure that it’s easy and convenient to use.
Step Two: Identify Your Income and Expenses
Once you’ve picked your budget medium, it’s time to start adding your figures. Start by placing your income, including your salary and any additional sources of income you may receive on a regular basis. Next, add in your expenses. This could be items like rent, groceries, motor vehicle insurance premiums, and entertainment costs. Include every expense you expect to pay on a monthly basis to ensure that you account for all costs you will have to cover. Next, calculate (either manually, or by using Google Sheets’ or Microsoft Excel’s nifty auto-calculate formulas!) the difference between your expenses and income. This will reflect on whether or not you have enough income every month to cover your expenses. Ultimately, you should have more income than expenses every month.
Step Three: Be Realistic
While it may be tempting to tweak your budget, being dishonest with yourself will not help your efforts to take control of your finances. Try to be as honest and realistic as you can with your budget, including every expense you can think of, even if you have to add expenses that are not necessarily a monthly cost but may be a once-off expense, such as cinema tickets or a lunch to which you treated a friend. Knowing where your money goes will help you control your spending more easily.
Step Four: Be Sure to Save!
Saving money is extremely important and should be done as often as possible. Having money stowed away in a savings account will protect you against unforeseen expenses and unexpected costs that inevitably pop up. However, saving money doesn’t have to feel like a grudge chore; putting money away every month helps teach you discipline, and can show you the benefit of saving for special occasions like holidays and outings, rather than spending money on smaller, unnecessary purchases.
Step Five: Check Your Cash Flow
One of the easiest ways to lose track of the money you spend is by using cash to make payments. A couple of pounds here and there can quickly turn into hundreds of pounds being spent without you really realising exactly how much you are spending. An easy way to manage and monitor this expenditure is with your budget! Simply add in the amounts you have withdrawn from your bank account and make notes of what you have spent the cash on. At the end of the month, you may look back and realise how much money you spent unnecessarily!
Step Six: Revisit Your Budget Often
Once you have created your budget, try not to think of it as a static thing. Income and expenditure can change and you should try to revisit your budget regularly to ensure you are still accurately keeping track of your monthly expenses.