How & why to plan your monthly budget

Creating spreadsheets, bashing calculators and sorting through paperwork may sound like tasks you’d only ever want to reserve for a day in the office, but planning a monthly budget is one of the most important steps you can take in life.

Think of a home monthly budget as a ‘spending plan’ which accounts for your monthly income and your total outgoings. By having a clear grasp on both, you’ll know exactly where your hard-earned money goes, spot saving opportunities and plan for a debt-free future.

Without a monthly budget, you can all too easily end up spending more than you earn and fall quickly into debt.

Here’s how to avoid making that mistake with a quick guide to planning your monthly budget.

1. Get organised
   Don’t rush your monthly budget. Set aside time to gather all of the relevant paperwork:
   • The last few months’ payslips
   • The last 6 months’ bank statements
   • Recent credit card bills
   • Copies of utility and other household bills
   • Details of any pension contributions and savings accounts

   Next, pick your spreadsheet of choice (Excel is hard to beat, but there are great free alternatives).

   

2. Analyse your income
   Make a list of all forms of income. If you have two jobs or run a self-employed business on the side, don’t neglect them. Make sure you work from figures which represent your take-home pay after tax and National Insurance deductions.Although we’re putting together a monthly budget, it is important not to focus solely on monthly income. If you receive ad-hoc bonus payments or dividends throughout the year, add them in too. On your spreadsheet, just make sure you separate annual from monthly income. Then, you can calculate overall totals for each type of income and a grand total for your yearly earnings.
3. Suss out what you are spending
   It’s time to get super-honest. Look through your last few bank statements, household bills and credit card statements and list all monthly and occasional expenditure. Don’t leave anything out – even that panini you have from the posh sandwich shop down the road. Consider events too – birthdays, MOTs and insurance policy renewals all need to be taken into account when planning your monthly budget. Now, add up your monthly and occasional spend separately. Add both together to see your overall expenditure for the year. If you divide that number by 12 and look at the difference between the result and your regular monthly spend total, you’ll see how much cash you need to set aside each month for irregular spending such as gifts and that MOT.
4. Work out your surplus/shortfall
   Looking at the monthly figures, take your total expenditure away from your total income. You’ll be left with either a surplus (disposable income) or shortfall (a negative number). Whether you discover you have money left over or are spending more than you earn, the next step is the most important.
5. Draw up a budget – and stick to it.
   Go through your expenditure with a fine-tooth comb and cut out what isn’t essential. That panini can go, and you never watch the movies on Sky, so you can reduce the package. Be ruthless. Switching utility providers can offer a saving which won’t affect your lifestyle, as can changing credit card providers, so investigate those options, too. You’ll be left with a monthly home budget. Stick to it and watch your cash surplus rise.

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