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Winning at finance means making a budget, and sticking to it. Whether it be to combat debt, control overspending, or to help save for something special, read on to discover how to draw up a budget that works for you.
Log Your Spending
As discussed in a post I wrote previously, logging your spending is the place to start, in order to see patterns and expenses that you might not have considered when budgeting purely for bills.
You know how it is. Unless you budget for everything, unexpected expenses pop up. Such as a birthday present for a close family member. You don’t have the cash to pay for it, so you pay with your credit card with the mental promise to pay it off as soon as you’re paid. Only, because you blow your budget month after month, it never gets paid off. You add something else to your credit card, and the cycle continues.
This is called overspending.
- Take your last three months’ bank statements, and list ALL of your outgoings (Include ALL of your personal bank accounts). Online purchases, monthly subscriptions, night out, etc. are often unaccounted for and get missed when it comes to budgeting. 13 Reasons Why we Overspend gives some great examples.
- List everything in categories. Bills, food, nights out, meals out, family days, birthdays.
- Calculate the totals for each category to give you an idea of how much you are spending.
- Continue logging your spending on a regular basis to monitor patterns.
Are You Overspending?
Once you’ve listed all of your outgoings, add them together and divide by 3 to get your average monthly spend.
If your outgoings are higher than your income, you have a problem that needs solving. First of all, you’re going to have to work out where you can cut back, and look at other ways to save money.
If you want to get out of debt or begin saving, you need to boost your income and look at some quick ways to make some extra money.
Is Your Income Higher Than Your Expenses?
If so, that’s great news! But you still need to make your money work smarter. It’s still possible to save money on your outgoings and increase your disposable income, which you can then look to save or invest.
Unless you’re happy to spend all of your money and avoid financial growth, you need to release as much of your hard-earned cash as you can and pay it back to YOU. You can still enjoy life without throwing money away. Simply make smart choices on where your money goes.
What Do I Need to Create a Budget?
What you’ll need:
- A spreadsheet
- Bank statements (last three months for ALL accounts)
- A calculator
- A few hours of your time
Making a budget is one of those jobs that we all put off, simply because it doesn’t offer instant gratification. The thing is, any progress in life can only be achieved through work and perseverance, and getting out of debt and becoming financially independent will take time and commitment from YOU.
Time invested in yourself and your future is the first investment you need to make, now.
How Does Miss Penny Money Budget?
We’ve been a single-income (fixed income) household for 7 years now, and our budget is based on my husband’s salary.
We cut back on all of our fixed monthly outgoings where we could, including cancelling non-essential subscriptions. There are so many shows available On Demand (BBC iPlayer, ITV Player, 4OD, Demand 5), it’s possible to enjoy television without a subscription service.
Food and fuel goes into a separate bank account.
I allocate a set amount of our income for clothes, birthdays, pets (insurance), a little pocket money for both of us and a small amount for family fun. Also hair, car maintenance, holidays and other regular expenses.
If keeping track of your card payments is a logistically nightmare, using cash envelopes really helps. At the beginning of each month/week, I’ll draw out the set amount for each category and put them in an envelope, only using that envelope to pay for (budgeted for) items.
You can physically see what you’ve spent and what you have left, and it really helps to prevent overspending.
If you know only have £75 a week to spend on food, you’ll be more conscious of the spending choices you’re making. See 10 Ways to Save on your Supermarket Shop for some grocery money-saving tips.
If you need help on how to list your income and expenditure, take a look at this example:
Everyone’s budget is personal to them. For example, you might want to include a ‘personal grooming’ budget, or add a category for extra-curricular activities, such as school clubs.
The important thing is to make sure you list everything so that nothing gets missed. If you need to cut back you should perhaps scrap unnecessary items. As Dave Ramsey advocates, in order to achieve debt freedom, ‘cut out everything except the basics’!
Making Your Budget – and Sticking To It
Once you’ve got your list, it’s one you can stick to. Think of it as your financial blueprint.
However, it shouldn’t be set in stone and will need to be monitored and tweaked on a regular basis. For example; I originally allocated £10 a month to birthdays, but it wasn’t enough as some months there were more birthdays than others. So I increased it to £20 and cut back on other areas.
Some people check their budgets weekly; some monthly. Check your bank account at least daily to begin with, to ensure there aren’t any outgoings you’ve missed. Once you’ve taken control of your money, you should hopefully find you have money left over. This can either be put towards paying off debt, or transferred to a savings account.
One thing I like to do each month is to see how low I can get my weekly food shop. If there’s any money left over in the budget, I put it towards my latest debt repayment.
Once you know how to draw up a budget, you’ll find it much easier to stay on track with your spending. If you’d like to use the above example as a template for your own budget, you can download the spreadsheet here.
It’s fully customisable, you can edit the descriptions and add or remove rows to suit your own circumstances. I’ve left the descriptions in there to help you in case you’ve missed something.
Alternatively, if you prefer to use a handwritten template for budgeting, you can download these free printables when you subscribe.