When you were in school, you learnt about things like Pythagoras theorem, how to make a fruit salad (yes, they taught me that in Food Tech) and what a Bleep Test is….Now I am sure these are very useful for some people (or not!); but if you are a mere mortal like me, when you finished school you struggled with adulty things such as finances, pensions, mortgages etc.
If you struggle with money and find yourself always waiting for the next pay day or perhaps you just wish to start tracking your savings for that luxury holiday, a budget will become your best friend.
So, what is a budget?
A budget, in simple terms, is an estimation of income and expenses, usually over a given period of time – a month or a year for example. It gives you the ability to visualise your money in vs your money out, which in turn will enable you to cut costs where not needed and achieve goals quicker. Your budget should not be designed so that it feels too restrictive and leave you with no money to enjoy yourself; but instead viewed simply as a tool to manage how you spend your money.
Here’s What You’ll Need
1. A goal – What is the goal of you setting up a budget?
Everyone’s answer to this question will be different. Some of you may wish to pay off your debt quicker by fully understanding where you can cut costs elsewhere to make room for bigger repayments. While others may be savings for a deposit on their dream home. Whatever the reason, understanding your ‘why’ is so so important as it will form the whole basis and tone for your budget. It will also make budgeting seem less of a chore as you will (hopefully!) see that your goals are within reach.
2. Work out how much you earn.
You will need to start off by working out how much you earn each month. You may need to grab bank statements or your payslips to aid you. If you are paid monthly it will make sense to prepare a monthly budget and if you’re paid bi-weekly, then set up a bi-weekly budget and so on.
3. Work out how much you spend.
Trying to work out all the bills you pay out will be tricky so this is the section which will most probably take you the longest to fill out. Digging out bank statements from the previous few months will help you greatly with remembering not only who you pay, but also how much. I would recommend splitting this section out in three parts: Fixed, Variable and Pots.
Fixed
These costs should be pretty straight forward to narrow down. They are items such as rent, energy, broadband etc. These do not fluctuate month on month so you can be confident what you have budgeted will be the amount you pay. For these, I like to write the due date next to the cost so mid-month I can track where I am up to.
Variable
These costs will fluctuate month on month so you may have to use judgement when budgeting these amounts. For me, this category would include items such as petrol, beauty appointments, nights out etc. But just tailor this section to suit your own personal needs.
Pots
Creating pots is a completely optional extra and what you may have seen being referred to as ‘sinking funds’ or ‘emergency funds’. This is money you set aside each month for a future event e.g Christmas. I like to build my Christmas fund up over the course of the year so that when Christmas finally does come around, I don’t have to reach for the credit card.
Review your budget regularly!
Reviewing your budget is a MUST. You will need to assess what has actually been deducted from your account and compare this to what you budgeted. If the actual cost was more than budgeted for, ask yourself why. Was the budgeted amount just an approximate? Have I overspent needlessly? Asking yourself these questions will help you better understand the costs which are under your control and give you that responsibility.
Reviewing your budget and reassessing your costs will also provide you with a better starting point for the next period.
It can be daunting looking at your finances in any great depth, so I’ve created a ‘Beginner’s Guide’ full of printable templates which you can purchase here. Having this handy will equip you with all the necessary tools to begin you budget journey.
