When you’re worried about money, it often feels easier to bury your head in the sand than to face up to our (often undesirable) spending habits.
But the first step to getting your finances under control and taking the scariness out of money is to get a clear picture of how you’re doing, money-wise. A good way to do this is to create a budget. Here’s how.
- Gather up your supplies
You’ll need something to write on, your financial info and a calculator. There are plenty of budgeting apps and fancy spreadsheets available online, but there’s a lot to be said for keeping it simple, especially when you’re just getting started.
For most people, your banking app is probably all you’ll need to get a good picture of your incomings and outgoings. But if you don’t use online banking, or you prefer to use cash, you’ll need to gather up bills and receipts to get a true picture of your spending.
2. What do you pay for regularly?
Make a note of every recurring payment you pay for, and how much it is each month. Rent, council tax, mobile phone, car insurance, water, Netflix, etc., you want to find everything. Comb through your bank statements to find them.
Categorise what you pay for as needs (that’s the essential stuff like rent) and wants (that’s things like streaming subscriptions, beauty boxes, magazine subscriptions, etc.) so you can see what’s essential and what are extras you can cut back on if needed.
3. Where else does your money go?
Next, add up how much you’re spending on groceries and food. This will give you a picture of how much you’re currently spending. This is usually a big chunk of spending for a lot of people, and you can reassess this later. Don’t forget to include things like cafe trips and takeaways: you can put these into separate categories if they’re something you want to cut down on.
You’re bound to be spending on things that can’t be categorised as a recurring payment or food too, so find those transactions and make a note of them. Again, give them a category and mark whether it’s a want or a need. Some things will be obvious (it’s a good bet that £30 spent at Primark will come under clothing), but some won’t (not sure exactly what you bought from Amazon when you spent £50 there a few months ago? We’ve all been there). If you’re not sure, you can categorise by retailer and take a closer look later if needed.
4. Consider your income
Now the important part – are you spending more than you earn? Make a note of what comes into your bank account every month, being sure to include any benefits as well as your salary.
Add up your outgoings and see how it compares to your income. Don’t panic if it’s not looking good, this is just the starting point and you’ve got the power to change it now that you’re armed with knowledge.
5. Set your budget goals
Think about what you can realistically spend based on your income. Subtract the essentials that you pay for and think about what’s left over for groceries, health and beauty, clothing, entertainment and saving. Not sure where to start? The average family of 4 spends around £600 a month on groceries according to the Office of National Statistics.
6. Reduce your spending
Some things, like your rent and council tax, may not be practical to reduce. But some things will, so look at what you pay for monthly and see what can be pared back. Can you switch to a cheaper broadband package, or use Spotify with adverts instead of paying for premium?
Look at the ‘wants’ on your list – what can you ditch, at least for the time being?
7. Boost your income
Can you find ways of bringing in more money to boost your income? Start by selling unwanted things: eBay, Vinted, or Facebook Marketplace for clothes and household goods, sites like Music Magpie and WeBuyBooks for old DVDs, CDs, and books, and sites like Mazuma Mobile, CEX or Envirophone for old mobile phones.
Check out Moneysavingexpert’s ways of boosting your income [https://www.moneysavingexpert.com/family/boost-your-income/]for some ideas, but most things like doing online surveys or market research studies aren’t a steady source of income.
It may be time to think about asking for a pay rise, looking for a better paid job, or taking on a second job as a more reliable way of getting more money coming in.
8. Don’t despair
If you’re struggling with money and you’re finding sticking to a budget hard, try not to stress. Reining in your spending can take time, especially if you’re used to impulse buys and frequently splash the cash. Every little step is one to be celebrated, even if it’s as small as making coffee at home instead of buying an expensive latte.
If you can’t cover the basics, or you’re struggling with debt repayments, it might be worth giving a debt charity like StepChange a call. They’ll be able to help you work out a realistic budget, and they’ll help put payment plans in place with companies you owe money to. Doing this can be a last resort, but it can give much needed relief if you’re overwhelmed with debt.
