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How to Budget

If you're trying to save money, want to streamline your spending or simply need to plan your month's spends in advance, setting a budget is the simplest way to keep on top of your finances. But budgeting doesn't have to mean scrimping - you're simply making a plan of incoming and outgoing money. With a little planning beforehand, you can set a comfortable plan, achievable savings targets and get on top of your finances in no time.

Work out your outgoings

This refers to the financial commitments you've made, and need to keep, such as your rent or mortgage, phone bills and utility bills. To start with, make a note of these, and work out your total necessary outgoings for the month.

When you're working out all your spends, Which? magazine recommends having a few recent documents to hand, such as your credit card bills, bank statements and your utility bills. Which? also suggests having your pension and savings information handy too. This way, you can create a more accurate figure for how much you spend each month.

Work out your incomings

Next, figure out how much money you'll have coming in. Use old payslips and previous bank statements to work this out, particularly if you're working out a budget for your whole household. Make sure the figures you include are after tax to give a realistic number.

As outlined by Citizens Advice, your income isn't just your wages. This might also include your pension, tax credits or other benefits, child support or maintenance money and any other monies you might receive from your family.

Now you've got these two figures, you can take a look at the two and see if you have more money going out than coming in, or hopefully, the other way around. 

If you're spending more than you're earning

Once you've calculated your outgoings, you can work out which ones are necessary and which ones aren't. For example, bills and rent will be necessary, whereas a clothes-shopping spree might not be. This way, you can figure out how much money you need to save a month, then any left-over can be divided between a monthly budget for luxuries such as meals out, and an amount to put into your savings.

Top tips

  • If you do allow yourself a budget to spend on luxuries, don't forget that you don't have to spend it all - it's not a target. Any leftover can either be put into savings, or rolled over to the next month.
  • If you find it difficult to save, set yourself a target or have a plan in mind of something to save for. This might be something to save for long-term such as a house deposit or luxury trip, or something more achievable in the short-term like a new pair of shoes, or a meal out.
  • If you're finding your monthly necessary expenditures a little unmanageable, particularly your utility bills, Which? magazine recommends taking a look at other energy providers to get a better deal elsewhere.




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