Getting started
Start with a budget template (you can download one here or complete one online here). Pick any one just to get you started. The trick is to find the system that works for you and the best way to do that is to keep going until you find the way that fits.
Follow the next 6 steps and you will soon feel in control of your money.
Step 1: Note your net income
Firstly, identify the regular amount of money you have coming in. This needs to be the amount after all deductions like tax etc. If you use your total salary, then you will be overestimating what you can spend. As an employee the best way is to look at the NET or take-home pay figure – usually the amount that arrives in your bank account. Be careful with including overtime or money from a second job or hobby unless it is regular.
Step 2: Track your spending
Categorising and tracking your spending is the next step as it does three things:
You can start tracking your expenses by writing them down or using an app like Money Dashboard. (www.moneydashboard.com)
List all your fixed expenses. These are regular monthly bills such as rent or mortgage, utilities or phone payments. Include debt payment and savings here.
It’s unlikely you’ll be able to cut back on these but knowing how much of your monthly income they take up is important.
Next list all your variable expenses—those that change from month to month such as groceries, petrol, and going out etc. This is an area where you might find opportunities to cut back if you need to. Include holidays, Christmas and birthdays here too.
Step 3: Set Goals
Goals don’t have to be set in stone but knowing what you want, before creating your budget will identify your priorities and help you decide what spending is most important to you now and what isn’t. Eg you may decide that paying off your credit card is more important than a phone upgrade right now.
You can set long, medium and short-term goals to suit you.
Step 4: Give Every Pound A Purpose
The idea is to give every pound you have a purpose – a job if you like. That way you will have measured spending which you will find much easier to control.
Find the total of all your monthly expenses and deduct it from your received income. What is the answer? If it is a plus, then you could allocate some additional money to savings. If it is minus, then you have some trimming to do.
Can you reduce some of your fixed expenses? Maybe switch your energy supplier or downgrade a phone contract? Are there subscriptions you can cancel?
What can you juggle with the variable expenses? Try making a further list of what is absolutely necessary and what is not. You may NEED to drive to work, in which case the fuel cost needs to stay. You may have a monthly magazine which is NICE to have but not needed. That could go.
The Sum we want to achieve is:
Income – Expenses – Debs – Savings = Zero
Step 5: Adjust Your Habits to Match Your Goals
Once your income is matched to your expenditure you can refine it to match your goals.
If you had money over on the first go, great. Now, how can you tailor your lifestyle to meet your goals quicker?
If you found you had a minus figure and have had to make changes already, what more can you make to be saving more?
Can you skip going to the cinema for a film night in? Try adjusting the numbers to see how much money that frees up.
Look at all your numbers to see what you can do to do the best you can to achieve your goals. Looking closer at your expenses, you may see that a “need” is just a “hard to part with.” Be careful that the sacrifices you make don’t leave you feeling deprived. If this happens you will likely feel the urge to treat yourself which can put you back to square one!
Step 6: Keep On Track
Now that you have your budget, aim to stick to it. Check in weekly or even daily to see how you are doing. Use your banking app or Money Dashboard to help you.
A budget is not set in stone. Prices change, you may get a wage rise. Know that your budget is a dynamic document and will need adjusting often. The goal though remains and the sooner you get there the sooner you can set another one for success.