A home budget is a spending plan that tracks your monthly income and expenditure, so you know how your cash is being spent each month. It’s an important habit to get into, especially if you have debts you’re trying to pay off.
What’s a budget and why do I need one?
A budget will help you keep on top of your outgoings, providing you stick to it! It will help ensure you don’t spend more than you earn each month and you’re keeping on top of your bills.
You’ll need to revisit your budget plan on a regular basis – particularly if your employment or living situation changes as this could quickly send you off course.
Be realistic! Make sure your budget reflects your everyday expenses and income as closely as possible so you’re more likely to follow it.
1. Get organised
This is not something you can rush – the longer you take, the more accurate it will be and the more likely you are to stick to it. Set aside at least an hour. Before getting started, it’s a good idea to gather together some paperwork so you have all the relevant information to hand. You’ll need the following:
- several months’ worth of bank statements
- copies of your household bills
- information on any other incomes you may have
2. What’s your income?
Next, you need to work out your income. Make a list of your regular earnings from employment (after tax and National Insurance has been deducted), as well as any other income you might have or benefits you receive.
Now might also be a good time to check you’re paying the correct amount of tax. The MoneySaving Expert website offers a comprehensive guide to checking your tax code. Click here to find out more
3. How much are you spending?
Next, you need to work out how much you’re spending each month and on what. Go through your bank statements and household bills to ensure you have a realistic idea of where your cash is going. The more accurate your figures are, the more useful your budget will be.
Remember to account for occasional spending, not just monthly expenditures. Think about the cost of Christmas, birthdays, insurance policies, your MOT, club memberships etc. Add costs like these into your list of expenses – and separate them from your regular day to day outgoings.
Once you’ve captured everything, add up your monthly and occasional spending separately so you end up with two totals.
Next, calculate an overall figure that incorporates all your yearly expenditure. If you divide this number by 12 and look at the difference between your result and your ‘regular spending’ total, you’ll see how much money you need to earmark each month for ‘irregular’ spending on things like car insurance and gifts.
4. What’s coming in versus what’s going out?
Now it’s time to compare your income and spending totals.
Take away your expenditure total from your total income figure. Even if you find you have more money coming in than going out, it’s still a good idea to draw up a budget plan. This will allow you to ensure you keep spending under control, and could help you find extra opportunities to pay off debts more quickly.
If during this process you discover you’re spending more than you earn, making a budget is a crucial task you shouldn’t put off. It will help ensure priority bills like your mortgage, rent, council tax etc. are covered and will hopefully identify unnecessary spending.
Once you’ve drawn up your budget, it’s important to keep an eye on how close you’re sticking to it – particularly in the first few months.
At MoneyPlus all our customers receive an annual review of their finances to ensure they’re getting the most out of their budget.