There are many reasons why you might need to set yourself a budget to live by. You may be a student with a tight income to last you for the whole academic year, or you may have debt on credit cards or loans that you desperately need to pay off before the interest starts to mount. Whatever the reason, here is your essential guide to setting a budget and sticking to it for as long as you need to.
1. Assess your finances
This is arguably the most important step in the whole process. You need to sit down and make a full list of all of your monthly income, remembering to include benefits, tax credits, pensions, interest on savings and rental income, as well as your income from work (with tax taken off). The next thing to do is to work out how much you spend. This can be much more difficult, but you can use bills, receipts, bank statements and any other documentation you can get your hands on to create an accurate picture of your monthly outgoings. You must be as honest and accurate as you can and make sure you include even small expenses such as the cost of buying your lunch or of going out for drinks with friends. It all adds up.
2. Look at the difference between income and spending
If you are spending more than you are earning every month, this is an obvious indicator that you need to start budgeting. The difference between income and outgoings is roughly the amount, plus a bit more, that you should be looking to save each month.
3. Identify areas in which you can reduce spending
There are lots of simple things you can do to reduce your spending, and the first place to start is with big outgoings such as your bills. You may be able to save a small fortune if you switch energy tariffs or providers, get a cheaper mobile phone and broadband deal, cancel subscriptions and services you don’t need anymore and apply for credit card products with lower interest rates. Once these big changes are made, you can then focus on the smaller things and work out how to adjust your lifestyle so that you spend less.
4. Draw up your budget
With all of the information you have so far collected, you can draw up your budget for the month using as accurate figures as you can come up with.
5. Keep a goal in mind
The key to success in sticking with a budget is to have a goal in mind, whether it’s clearing credit card debts or having enough to start a savings account with. You can then adjust your budget as you go along to help you reach your goal.