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How to create a budget
When it comes to saving money and cutting back on your spending, we think the best place to start is by making a budget which details your finances. However if you have never created a budget for your monthly finances before, then you may be wondering what is the best way to go about creating your own budget.
Whether you want to use pen and paper, computer spreadsheets or one of the many budgeting apps you can download on your smartphone, there is a way for you to create your perfect budget with on the go ease or meticulous detail.
Here are our top tips on what you should include in your budget and how you should use it to the benefit of your finances.
- Gather account details and statements – You will need to gather account details and the last monthly statement of all your accounts to help you create your budget. This will include your current account, savings accounts, stocks, pensions, mortgages, credit cards etc.
- What is your income? – The first thing you should input into your budget is the amount of money you make every month. This should take into account wages and any other income you can rely on receiving on a monthly basis. This will give you an accurate picture of the money you have available for bills and purchases every month.
- What are your outgoings? – List everything you have going out of your account, particularly recurring costs such as bills, debt repayments and other purchases such as food bills. List the exact amount going out that month on your first budget and then as the months go on you can see if there are any differences in monthly bills due to price rises or higher spends.
- What’s the bottom line? – Once you have placed your income and outgoings information into your budget, you will see the money you have left. If you are in the black, it shows you are managing well with what you have already. If you are in the red or only have a small amount left, you should look again at your finances. Is there anywhere you can save? Could you earn more money? Or do you need to get in touch with a debt management charity or personal insolvency company?
- Determine essential and non-essential spends – Your household bills and debt repayments are classed as essential monthly spends to keep your house in order. Whereas spending money on things such as nights out, magazine subscriptions, haircuts etc. are deemed non-essential and are areas where you could potentially cut back or cut out.
- Go into detail with your finances – Look into areas where can you cut back and figure out if there is anywhere that you are wasting money. By analysing your finances in this way, it will help you to become better at saving money and using your money in a more efficient way.
- Adjust your budget if prices rise – When bills and prices rise, you will need to adjust the spending projections on your budget. It may also mean that you need to find news areas where you can save because an increase in costs without an increase in income can harm the amount of money you have available each month.
- Set a savings target – You could set a monthly target for how much you would like to add to your savings account each month or you could set an overall target which is particularly good if you are saving for something in particular such as a wedding, holiday or home improvements.
- Set debt payoff goals – Whether you have a credit card, loan, store card or all of the above, managing your debts is extremely important. Set goals to pay at least the minimum payment on time every month and if possible try to make extra payments, particularly on credit with the highest interest rate, as the quicker you pay this off the more money you will save each month.
- Track and monitor your budget – Once you have put together your budget and set yourself some targets, you will need to continue to track your spending and monitor your finances. By doing this, you will see if you are saving money and hitting your targets or not. If you aren’t, it may be worth looking again at your budget to focus more on debt repayment and cutting back until your finances are on track.
If you are struggling with costs or repaying your debts, get in contact with us on 0800 901 2488 and our friendly, professional advisers will be able to offer you help and advice to deal with your financial situation.