Are you looking to get your finances in order but don’t know where to start? A budget is a great way to get a handle on your money and start saving for your future. Creating a budget can seem daunting, but with our easy step-by-step guide, you’ll be on your way to financial freedom in no time. Read on to learn how to create a budget that works for you and your family.
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In This Post
What Is A Budget?
A budget is an important tool that can help you take control of your finances and achieve your financial goals. When creating a budget, you will need to track your income and expenses so that you can see where your money is going. This will allow you to identify areas where you can cut back on spending and save more money.
A budget can also help you to stay out of debt and make wise choices with your money. Having a budget will give you a clear picture of your financial situation and help you to make smart choices with your money. With a budget in place, you will be well on your way to financial freedom.
How To Create A Budget In 6 Easy Steps
Creating a budget is not as complicated as it sounds. In reality its pretty simple and involves only three basic routines:
Track what you earn and what you spend.
Work to keep the second number lower than the first.
Lather, rinse, and repeat each month.
Unfortunately, just because budgeting is simple doesn’t mean it’s easy. Many people can be daunted at the thought of gathering all their financial information together, the process can be quite overwhelming in fact!
Thankfully, despite reports to the contrary, starting a budget from scratch doesn’t have to be painful or difficult. Here’s how you can create a straightforward budget that works for you.
There are lots of ways to create a budget. You can use online apps, and spreadsheets or simply use a pen and paper. To be honest, if you are serious about creating a budget and sticking to it, pen and paper is probably the best option. Seeing something written down on paper tends to feel much more realistic and serious, prompting you to pay more attention. However, use whatever option you find easiest.
Before you start, gather all your financial records from the last 3 months. This includes all bank and credit card statements and any receipts you may have. Grab a pen and a notebook or paper.
Step 1: Calculate Your Monthly Income:
The first step in creating a budget is calculating your monthly income.
Write a list of all your income, making sure to include everything no matter how small. This step is very important as this is what you will deduct your outgoings from.
Tip: If your monthly income is inconsistent then find your average from the last 3 months and use that instead. To find your average just add up the last 3 months’ income and then divide by 3.
Once you have all your income amounts, write them down in a list and add them together.
For example:
Income:
Salary £1200
Side income £300
Total: £1500
Step 2: Add Up Your Fixed Essential Monthly Expenses:
Next, you need to make a list of all your essential outgoings.
Essential outgoings are all those expenses that youhaveto pay each month such as rent, mortgage, utilities and living expenses.
Again if some expenses such as heating bills are different each month, find the average and use that instead. However, be sure to be as accurate as possible otherwise your budget won’t be correct and could become unrealistic.
For example:
Essential expenses
Rent £500
Water rates £30
Gas £30
Electric £40
Council tax £100
Groceries £100
Transport expenses £50
Total £850
Read more: 20 Simple ways to save money on groceries
Step 3: Set Financial Goals:
Before moving on to the next step, it’s important to set your financial goals. why are you wanting to set up a budget in the first place? Is it to save for something special, a house deposit, a new car or is it to pay off debt?
Think about the time frame in which you want to achieve these goals. Is it 6 months, a year or a longer time frame? Once you know how much you need to save, work out how much you are willing to save each month to achieve this goal.
Add this amount to your essential expenses as per the example:
Essential expenses:
Rent £500
Water rates £30
Gas £30
Electric £40
Council tax £100
Groceries £100
Transport expenses £50
Emergency fund £200
Car fund £200
Total : £1250
Step 4: Add Up Non-Essential Monthly Expenses:
Now you need to add up all the non-essential monthly expenses.
These are all the monthly expenses that you pay for that you don’t necessarily need. Examples of these include entertainment, eating out, holidays, clothes and personal items.
Now I’m not saying that we should all do without these items, but these are expenses that can be adjusted if needed to achieve our personal goals.
Once you have all your non-essential expenses, add them to the outgoings total like in the example below:
All expenses:
Rent £500
Water rates £30
Gas £30
Electric £40
Council tax £100
Groceries £100
Transport expenses £50
Emergency fund £200
Car fund £200
Hair and beauty £50
Clothing £150
Night outs £200
Total: £1650
Read more:24 Things to stop buying to save money fast!
Step 5: Subtract Your Expenses From Your Total Income:
The final part is to subtract your expenses from your total income.
If the remaining figure ispositivethen you earn more money than you spend. This means you are in a really good financial position. You will be able to easily save enough money each month to achieve your financial goals. You could also adjust your saving to save more each month and reach your goals more quicker!
If youbreak evenit means you earn just enough money to pay for all your expenses and save towards your financial goals. However, it may be still worth adjusting your non-essential expenses to give yourself a financial buffer.
If the remaining figure isnegativeit means you are spending more than what you earn. This means that you are not in a good financial position and are unlikely to reach your financial goals. However, depending on the amount, you could either reduce the amount you would like to save each month or spend less on non-essential expenses.
If you are serious of reaching your personal goals and becoming financially secure, I would recommend trying to reduce your non-essential expenses. This doesn’t mean that you need to stop treating yourself, you could just cut down, buy cheaper options or have less expensive holidays.
Read more: 18 Tips to help save money to boost your budget!
Step 6: Implement, Monitor And Adjust:
Once you have finalised your budget, all that’s left is to implement, monitor and adjust.
It may take a while to get used to sticking to a budget. However, if you are really serious about achieving your financial goals it’s important to stay on track.
Implementing your new budget isn’t just about sticking to your new spending limits. You should also make an effort to track all your spending, no matter how small. This way you can identify weak spots and adjust your budget accordingly.
How To Stick To A Budget
Anyone who has ever tried to stick to a budget knows that it can be a challenge. There are so many temptations to spend money on, and it can be difficult to resist the urge to splurge on a new outfit or a night out with friends. However, some strategies can help you stay on track.
First, it is important to set realistic goals. If you try to slash your spending too dramatically, you are likely to end up feeling deprived and discouraged. Instead, focus on making small changes that you can sustain over time. For example, you might start by cutting back on impulse purchases, or setting a weekly budget for entertainment.
Another way of sticking to a budget is by using the envelope method, where you allocate a certain amount of cash for each category and put it in an envelope labelled with that category. That way, when the cash is gone, you know you’ve reached your limit.
Finally, one of the most important things you can do is to give yourself some flexibility. If you blow your budget one week, don’t beat yourself up about it. Just pick up and start again next week. Remember, the goal is not to be perfect; it’s simply to make progress towards becoming more mindful of your spending.
Read more: 18 Simple ways to save money and boost your budget!
Final Thoughts:
Budgeting often gets a bad rap, but it’s all about spending money on the things that matter most to you. The simple process of creating a budget presents a great learning opportunity for you and your family.
Establishing a pattern of monthly budgeting is well worth the effort. Stay committed and follow your plan to obtain the desired results to reach your end goal!
If you are still struggling to make or maintain a budget or you feel like your finances are slipping out of control don’t be afraid to ask for help. Many organisations in the UK can help and give advice such asCitizens Advice,Money Saving Expert, andStep change.
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Thanks for reading,
