If you’ve identified that you need a budget, great! We all need a budget, whether we’re on low OR high incomes. To not tell our money what to do each month puts us at a financial disadvantage. Before you start, though, there are some things you need to know before making your first budget:
What Are You Currently Spending Your Money On?
You can’t set a realistic goal of spending £200 on groceries if, for the last six months, you’ve spent £400 per month.
For each of your budget categories, find out what you have been spending. If possible, look back over the past three months. Next, track your spending, for each area (groceries, eating out, clothes shopping, etc) for a month.
Write everything down as soon as possible and keep receipts.
Then, when you make your first budget, decide on a new amount for each category that is closer to what you want to spend. You can always adjust the amount for future months.
Do You Have Money Left at the End of Each Pay Period?
If you do, consider giving this surplus amount a purpose. This could be debt-repayment, savings, or whatever goal is most important to you at the moment.
You Don’t Need to Be Good at Maths to Have a Successful Working Budget
I’m not at all gifted at maths. Not even close (I even still count on my fingers!). All you need is a bit of organisation, a desire to feel better about your finances, a calculator and you’re all set.
Making a Budget Doesn’t Have to Involve Making a Fancy Spreadsheet
I do use a spreadsheet, but for ages, I used a pen and paper. I find it easier since using a spreadsheet that I designed for myself, but pen and paper budgeting is fine.
If you wanted to, you could use a money management app or software. There are loads around, but YNAB is very popular. They also have great video tutorials on YouTube. I signed up for the free trial and must admit, I found it a bit confusing, but I didn’t put enough time into it. You might be one of the many who love it.
Another great place to get started is ‘The Money Advice Service‘ Budget Planner.
Experiment with your budget and see what works best for you.
You Need a Budget If You Want to Improve Your Financial Situation
You’re reading this post because you want to improve your financial management.
If you have debts that you want to pay off, then budgeting will achieve this faster.
If you want to save optimal amounts of money each month, then you need a budget.
If you want to see how fast you can retire or pay off your mortgage, then you need a budget to help you to reach your goals.
If you want your partner to be able to stay at home with the children, then you need a budget to work out how to do this.
How Much Money Do You Owe, Who Do You Owe It to, and When Must It Be Re-Paid?
For most people with debts, especially those with a large debt-load, this can be the hardest thing of all. Everyone can understand not wanting to face up to such a stressful thing. The truth is, though, that unless you know exactly what you’re dealing with, you can’t improve things.
Get all your letters, statements and bank accounts opened up and add up what you owe and who to. Add the dates that these debts need to be repaid.
A Budget Doesn’t Mean That You Can’t Have Any More Fun
Budgets have a negative connotation of being ultra-constrictive. They can feel this way if your basic outgoings are almost as much as your income, even after making major cuts.
Can you meet your obligations and still put decent amounts to savings and/or debt? If so, then recreational spending is a good idea! It’ll stop you from feeling constricted and help you stay on track to reach the goals you’ve set yourself.
How Often Do You Get Paid or Receive Other Money?
If for example, you only receive income from one source every month then this is simple. Yet, if you receive income from more than one source, then they may come at different times.
If you receive a payment every two weeks, you’ll have months where you get three payments instead of two. Looking at exactly when you get paid is important to be able to budget well.
What Are Your Money Goals?
Knowing your ‘why‘ is crucial to sticking to your budget. It’s the difference between following your plan for a few months or staying the course.
You already know that you want to start budgeting your money, but why do you want to? If you don’t already have a strong reason, then ask yourself what will budgeting help you achieve? Return to that thought whenever you’re feeling like you don’t want to continue with your plan.
What Are You Willing to Do to Make Your Income and Outgoings Balance?
After making a budget and some time has passed you may discover:
- That your outgoings exceed your income.
- That there’s very little money left to enjoy each month
If this happens, then you may have to make further cuts to your spending, find ways to increase your, or both. It’s wise to bear this in mind before discovering that your budget doesn’t balance.
What Events Are Coming up That Will Cost You Money and How Will You Prepare?
As well as your monthly expenses, there will be random expenses that crop up. This could be an unexpected work trip or an M.O.T. It’ll vary each month, so think about how you’ll budget for this. Will you have a miscellaneous category in your monthly budget? What about for things like Christmas? Will you set aside a set amount each month so that by December you have enough to cover everything?
What Style of a Budget Will You Use?
Read my post: ‘Are You Within The Recommended Guidelines For Your Monthly Expenses?‘ and then decide how you’d like to design your budget.
You might want to split up your budget into ratios, such as:
A 10/20/70 budget:
- 10% of your money to savings.
- 20% towards extra debt-repayment (over and above what you’re obliged to pay each month).
- 70% to cover everything else.
Or a 20/30/50 split:
- 20% of your income goes to savings and/or debt.
- 30% is for non-essential spending.
- You keep your vital living expenses under 50%.
You may want to do something completely different.
Whatever you decide, be aware that as you build your budget, you may have to alter your plans. If, say, you have high outgoings compared to income, you may not be able to do what you’d first hoped to do with your money. This is ok. This discovery shows you that you need to think about how you’ll improve your situation. You can make things work.
The First Three Months Will Be a Learning Curve
I’ve heard this so often and it’s true!
An unexpected bill arrives and it’s at this point that you need to make an important decision. Many people will think ”Well, I’ve blown the budget, so I may as well start fresh next month. Now, where’s the nearest coffee shop?” Or, ”I’m terrible with money, there’s no point, and I’m giving up.”
What you could consider, instead, is that budgeting is a skill, like any other and so needs practise.
Life doesn’t care about your spreadsheet or bank account and it’s up to you to be creative. Is it possible to reduce your other spending this month, to cover the unexpected expense? Can you say no to the expense? How will you alter your budget going forward so that you’re as prepared as you can be for these such events?
Finally, return to your ‘why‘. It’s the reason that you’re doing this.
You’ll Sometimes Get Tired of Budgeting
If I, a budgeting nerd can sometimes get fed up with the budget that my husband and I made, then anyone can.
If you can add some ‘fun money‘ into your budget (even if it’s a chocolate bar each week!), then that will help.
Are you facing a long road of debt-repayment? If so, consider budgeting some ‘celebratory‘ money for when you pay off a certain amount. Then get back to it.
Again, remember your ‘why‘. It will sustain you.
If You Have a Partner, Then He or She Needs to Be on Board
This is so important.
If YOU want to live frugally and commit to paying off large amounts of debt, your partner can’t max out the credit card!
It’s fine if one of you takes charge of actually paying the bills and keeping track of paperwork. But you both need to talk about what you want for your immediate and long-term financial future. What sacrifices are you willing to make? Where do you want to spend your ‘disposable’ income each month?
I’ll let you in on how it works in our house. I update the spreadsheet, keep watch over the bank account and ensure that bills are being paid. This is because managing money has become a skill of mine and I (for the most part) enjoy it. Yet Mr.B finds all that stressful, boring and confusing. As boring and nerdy as it sounds, we have a budget meeting every month. Mr.B has an equal say in whatever financial events come up throughout the month.
What surprises us is, when we have our budget meetings, we end up talking about many other things. Money influences so many areas in life, such as where we want to go on holiday or who to buy Christmas presents for. It opens up communications about many things. In fact, I can say that it’s improved our communication in general. I’ve heard this so many times from other couples who budget together too.
If you don’t have a significant other, then you won’t have to concern yourself with the above. That said, you also don’t have somebody to keep you on track. So consider having some sort of accountability partner for support and encouragement.
It’s Worth Doing
I’ve always had a conservative attitude towards spending. I’ve always lived within my means. Yet it wasn’t until I made a budget and identified my financial goals that I saw noticeable results.
Since having a plan to follow, I’ve achieved such a lot. This is despite a low income and three years of being unemployable. I don’t say this to blow my own trumpet, but to encourage you that you can make a positive difference in your life. This comes when you tell your money what to do.
How Much Is Your Income, Actually?
You might be on a £25,000 salary, but what do you actually take home each month? After tax, National Insurance, and pension, what remains? Do you receive any government benefits? If so, how much? Add it all up to see exactly what you’re working with.
Practical Next Steps
- Decide if you’re going to have a weekly, fortnightly, four-weekly or calendar-monthly budget.
- Track your expenses for a month.
- Try to find out your expenses for the past three months.
- Work out how much money you owe, who you owe it to and when it must get paid.
- Write down what your weekly/monthly income is and what dates you receive it.
- Write down your reasons for needing a budget and what your next financial goal is (review often and when you achieve each goal).
- Look at your calendar and write down all the bills, (plus birthdays, etc.) that are going to occur in your budget cycle.
- Decide which budget style you want to try. You can always switch to a different style if the one you try isn’t a good fit for you.
- If you have a partner, set a time for a budget meeting to work through all the steps above. (If you’re flying solo, find an accountability partner).
All this may seem a lot to do, but if you want to succeed, then you need strong foundations. Once you’ve completed the groundwork, congratulate yourself for your effort. Now go and build your first budget!
My hope with this series is that it helps at least one person to put a budget together.
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Lisa a.k.a ‘Bunchy’