Learn to manage your money and find out what you are spending it on each month. Here is a guide on how to draw up a budget to stay on top of your finances.
Drawing up a budget will make it easier for you to manage your money and will make sure that you are not caught out by unexpected expenses.
It will help you examine whether you spend more than you earn, and provide you with a concept of what you can afford to spend.
This should assist you in finding a clear and simple way to spend less money than you make.
Tips for writing up your budget
Before writing your budget, use the following tips to make sure that you have everything you need:
- Be as accurate as possible: When you have to make an estimate, it is better to overestimate your amounts rather than underestimate them
- Work out when bills go out: If many of your expenses go out monthly, calculate your income and expenses as monthly figures
- Take your time: You need to set aside time to write a budget in order to make your budget as accurate as possible and so that you can give it your full attention
- Get all your paperwork: You will require all the documents that reveal your income and expenses, for example, utility bills, receipts, and bank and credit card statements.
- Think about the purpose of the budget: For example, if it is for you and your partner, make sure that you draw it up together and include both of your incomings and outgoings
Step by step budgeting
Follow these steps when you write your budget to ensure that your results are accurate:
- Determine exactly what you earn: Make use of your payslips to enter your salary after tax, and include any second jobs that you have. Ensure that you include any benefits that you receive.
- Don’t duplicate your outgoings: Be careful to only include your bills once. For example, if you pay for your TV, home phone, and broadband together, just enter the total cost.
- Include one-off spending: Even if they are not considered as a monthly cost, you need to include one-off purchases like a new boiler or car. Determine how much you spend at Christmas and divide it by 12 to determine a monthly amount.
What do your results mean?
When you have recorded all your incomings and outgoings, you will be provided with a total that reveals how much you are over or under spending every month.
If you have a negative total
This means that you spend more than what you earn, It reveals that you are living beyond your means.
If you have a positive total
This means that you earn more than you spend, It reveals that you are in a good financial position.
It is still worth checking if you could be saving money, since you may be spending more than you need to.
If you have a positive total, think particularly regarding what to do with the extra money that you are not spending. You could:
- Invest your money
- Deposit your money in a savings account or ISA