A budget is an incredibly useful financial tool. In basic terms, it’s a plan that provides an in-depth overview of your spending habits and earnings, so that you can establish a good idea of where your money is going. Provided you stick to the plan you make, you should find that your budget helps you to stay on top of your spending, and avoid using more money than you earn.
The problem with a lot of modern budgets is that they aren’t designed to work. While many people look at their typical monthly spending, they forget about extra expenses like your weekly coffee, or the newspaper you pick up on the way to work. With that in mind, it’s worth starting 2018 with a closer look at your budget, so you can make sure it’s as accurate as possible.
Organise Your Information and Take Your Time
The first thing you need to do when you’re getting an in-depth look at your budget is set aside at least an hour where you can examine the information you have carefully. Rushing your way through the experience makes it more likely that you’ll make mistakes. It’s a good idea to gather all the paperwork you’re going to need before you get started, so make sure you get hold of a few months of bank statements, along with copies of household bills, credit card bills, and savings.
Some people also find it helpful to look at their pension contributions and regular savings accounts too, as this gives a more complete overview of your financial situation.
Evaluate your Income
Once you’ve got all the information you need handy for creating a budget, make a note of your typical earnings from your employment. You should take off any of the money you don’t get to see, such as the amounts used for tax, student loans, pension contributions, and so on. Then add your additional sources of income from investments, savings, self-employment or anything else.
Give yourself an average of what you’ve earned over the last three months, and use that to give yourself a rough idea of what you can expect to earn in the coming months.
Track Your Essential Spending
Now it’s time to start thinking about how much money you spend in a critical way. Categorise your payments so you have an idea of where your cash is going. For instance, you might have categories that include your mortgage payments, childcare, groceries, utility bills, and travel. Then gather your bank statements, credit card bills, and household bills to check you’ve got all the numbers right.
As you did with your income, calculate the total amount spent on essentials over the last three months, then subtract that from your monthly earnings. This will help you to see what your “disposable” income should look like.
It might also be worthwhile to consolidate some of your essential spending into one lower, affordable payment. Particularly if you have a lot of priority debt payments. Sites like Readies.co.uk can advise you on this and help you make an educated and informed decision.
Review Your Disposable Spending
An accurate insight into how you’ve spent your disposable income up until now will help to prevent you from over, or under-budgeting in certain places. Keep track of how much you’ve spent of your disposable income over the last three months so that you can calculate an average. If you put money into savings or an emergency fund, you should keep a note of that too.
This is the point where you might start to discover that you’re spending more than you earn. If this is the case, you need to start re-thinking the way you use your disposable income.
Choose a Budget You Can Stick to
Now that you have an accurate picture of your spending habits, you should be able to draw up a budget that feels more realistic for you to stick to. Use your spending figures for the last three months, and you could even calculate how much money you could potentially save if you can cut down on unnecessary spending.
Just remember that life is an ever-changing thing, and once you’ve drawn up your budget, you’ll need to keep an eye on how faithfully you’re sticking to it and adjust your expectations accordingly. Most experts recommend revisiting your budget every month, as this way, if you’re constantly overspending, you’ll be able to readjust your strategy before it has too much of an impact on your financial goals.
If you have trouble keeping track, you could always try downloading a budgeting application onto your phone or computer that will help you to assess your finances each month.