What is a budget and how can I do it?
We all know the feeling, we receive our income and the by the time we’ve paid a couple of bills there seems to be nothing left? If you’ve not experienced this great, you don’t need to budget…or is the completely true? Even the most money savvy people want to budget better.
Budgeting can be as complicated as you like, you can mark down every penny you spend, you can portion it off for different expense but it is as simple as
Balancing your expenses with your income. If they don’t balance and you spend
more than you get, you will have a problem. Many people don’t realise that they spend more
than they earn and slowly sink deeper into debt every year
Different budgeting tools
There are a number of ways to check where you are spending your money. Click here for the Money Advice Service budgeting tool which is excellent. Another easy way is with a piece of paper;
- Make a list of your incoming money – Wage, benefit entitlement, children’s board, maintenance, pension, and returns on savings or investments
- Then make a list of all your regular outgoings or expenses – Food shopping, rent or mortgage, Gas/Electric, council tax, insurance, child care cost, loans and credit agreements, mobile contracts or top-ups, internet, travel expenses such as car/public transport, socialising and any other regular payments
- To recalculate income/expenses from weekly or fortnightly to monthly
- Weekly to Monthly: £Figure x 52 / 12 = monthly
- Fortnightly to Monthly: £Figure x 26 / 12 = monthly
4. Take the monthly income figure and minus the outgoing/expenses figure
- If you have a minus number, you have a problem where you are spending more than you receive
- If you have a plus number, you have surplus and according to your budgeting sheet have money to spend after paying all expected bills. I’ve got a plus number but know I never have that much left over? At this point you need to re-evaluate whether you have included all outgoings, the Money Advice Service budgeting tool will allow you to dig deeper and identify areas of spending
Another basic model for budgeting is the 50/30/20 method. Nerdwallet explain how your monthly income should be split 50% for necessities, no more than 30% on wants and 20% on debt repayment and savings.
Wants and Needs – what to do next
If you do not have enough money at the end of the budgeting process, then you need to use the information to prioritise what is essential outgoings and what spending you could cut out or reduce.
How do I divide my money after I’ve worked out my budget?
There is no right way to do this, some suggest that you jam jar you income, where as some manage to do this with good money management, without physically moving income around.
Jam Jar – when your income arrives, create ways to split into manageable amounts for your expected outgoing. Necessities first – Food, housing, utilities, childcare, travel, loans and credit. Then the remaining surplus money can be used for ‘wants’ and saving.
Many people use different bank or savings accounts to carry out the jam jarring. The Engage pre-paid debt card that PCCU provide has a handy enveloping system facilitate budgeting. Some account holders use physical envelopes, jars or money bags to separate money.
Budgeting allows you to create a spending plan for your income, it ensures that you will always have enough money for the things you need and then identifies the remaining money for things that you want and are important to you. It does not always work but by having the figures in front of you it allows you greater control over your finances.