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What is a budget?
A budget is just a financial plan that will help you live within your means. It’s a tool you can use to prioritise your spending, ensuring you have enough money for the essentials allowing you to save for your dreams and invest for your future.
Who needs to budget?
If money management as always been one of life’s mysteries or you‘re constantly worried about your bank balance, learning to budget could make a real difference. If you’re consistently struggling to pay your bills, your credit card is often maxed out and you feel like you’re always in debt then a simple financial plan could help. If you’re spending money when deep down you know you shouldn’t, then there’s a good chance you would benefit from budgeting.
Benefits of Building a Budget?
Creating a budget is usually the first step to taking back control and getting your financial situation on the right track. There are many other benefits to be had from building a realistic budget you’re able to stick to.
A budget quickly highlights areas of concern – the most obvious being do you have enough money coming in to cover your outgoings. It can prevent you from making costly mistakes such as missing payment deadlines which might incur fees or taking out expensive short term loans.
By identifying any problems areas, it encourages positive lifestyle tweaks such as the need to cut cost, spend more wisely or earn more. Building and staying with a budget can be helpful and well worth the effort.
Having a written financial plan can help you make smarter choices when planning for your future. In some cases successful budgeting can really help to reduce stress, alleviate anxiety and improve your overall wellbeing
How does a budget work?
Building your budget is not difficult. Using out free budget planner below, work out what money you have coming in and the money you spend over a set period. If you’re paid monthly or pay most of your bills monthly, it would be a good idea to set all the figures with-in your budget to monthly amounts.
If you have less money coming in than the amount you spend then it is up to you to decide where you can cut costs – see our recent post 10 Easy Ways to Save a Packet for some good ideas. What can you most easily do without? You might decide a little overtime might be the answer or be inspired to look in to passive income ideas and side hustles.
By the same token if you have more money coming in than going out and you’re not going without the odd treat, you budget may give you the motivation to put something away for Christmas, or the holiday you always meant to have.
You may even decide to start or top up your ISA or investment fund. With the right information and advice investing is a valid option for everyone – see our Beginners Guide to Investing for a more detailed look at your options
How to Build your Budget Using our Free Budget Planner
Locate any relevant paperwork and information showing your monthly income and outgoings such as pay slips and bank statements. Once you have all the information in one place calculate your total income using Section 2 of our Free Budget Planner and put this total in the Budget Summary at the top of the page.
Top Tip: Most smartphones have a calculator app, don’t leave anything to chance and double check your calculations.
Using Section 3 of our Budget Planner as a prompt, create a full list of monthly expenses such as, mortgage or rent, groceries, council tax, utility bills, travel costs, vehicle expenses & fuel, phone and tv contracts, loan or other debt repayments and put this total in the next box of the Budget Summary in Section 1.
Remember, it is important to calculate your utility costs from an appropriate bill. For instance, if you are trying to estimate your monthly electric bill for a winter month you must be sure to use a previous winter bill as a guide or try to find an annual statement. Put the total of all your expenses in the next box of your Budget Summary.
Subtract your outgoings from your income and put that figure in the Balance box. If this turns out to be a negative number for example -250 then it’s time to start looking for ways to reduce your outgoings or bring in a little extra cash. If you are lucky enough to have money left over at the end of the month, it’s a good idea to put some of it away in an emergency fund which will cover any unforeseen costs which might arise.
Now we’ve covered what, why and how to budget, it’s important to remember that this is the just the start. You now have the power to take control of your finances.
Your budget is there to help you see where you could reduce unnecessary spending, make more informed choices and possibly find that little extra to invest for the future.
We welcome your feedback, if you found this article useful, please let us know. If you have any further questions, feel free to contact us and we’ll try our best to help.