There are many reasons people may feel the need to start budgeting. Whether it’s about wanting to save up for a holiday, pay off debts, or simply balance out outgoings and income. Budgeting is the first step to taking control of finances. Setting up a budget means that you are less likely to end up in debt or get caught out with unexpected costs. This helps to alleviate financial concerns, and give you a piece of mind about your spending habits.
Take a look at the following steps to help you started:
- Calculate your total outgoings – Looking at your household bills, receipts and bank statements you can work out your total spendings.
- Calculate your total income. This can be done by adding your wages with any extra income, from savings, property or investment.
- Subtract your outgoings from your income, making sure that you’re not spending more than you’re earning.
Now that you’ve identified your spending patterns, you can look at how to improve your finances. Spending can be divided into ‘Needs’ and ‘Options’. Needs include food, electricity, rent and everyday living expenses. Optional spendings are those expenses that can be lived without. Examples of optional expenses including cinema tickets, holidays, and restaurant meals. Although it would seem like the easier option to cut out optional expenses, there are savings that can be made from reducing living costs too. This includes saving on water, electricity, food, or even travel if there is an option to cycle/walk to work. The optional expenses do not need to be eliminated all together, but can be reduced, i.e. eating at a restaurant once a week instead of 2-3 times.
When implementing changes, a spending diary can be kept, to track expenses, reflect on progress, and make changes if needed. With effective budgeting you can avoid unnecessary spending, which can build up over time, leaving you with savings that you may not have otherwise had.