Budgeting might not be the highest of your priorities; after all, studying receipts and spreadsheeting doesn’t seem like a fun way to spend your downtime. However, creating and sticking to a personal budget can be not only financially rewarding but also personally rewarding – and potentially important, given the coming year.
Why Start Budgeting Now?
There’s no time like the present to start budgeting. Paying attention to your spending, and cutting costs where possible, can be a gratifying process – and could be important in the coming months. The UK is currently being gripped by a cost-of-living crisis, with energy bills skyrocketing and wages standing stock still. Even if you’re fairly comfortable in your finances, rising costs could impact your income and reduce your savings. So, how best to go about drawing up a budget for yourself?
Define Your Expenses
Your first step should be to create a comprehensive list of all your outgoings, month-on-month. These expenditures would include rent or mortgage payments, utilities bills, taxes and even your average spend on food and travel each month. If you own a car, you might also include any finance payments, insurance, and other maintenance; irregular maintenance costs such as the purchasing of new car tyres can be difficult to include, so you might want to create a separate section for those expenses or include them in an ‘emergency costs’ section.
You can divide this list into essential and non-essential, giving you a clear picture of your necessary outgoings and how much you spend on luxuries or non-essentials. These figures, plotted against your monthly income, will form the basis for your budgetary goals.
Create Reasonable Goals
Now you can draw up your plan, including specific aims for saving. Start with the purpose of your budgeting; are you trying to save money for a big purchase or an early retirement? Do you have debts you would like to clear? This can become a concrete amount you would like to save, or an average amount each month, and can give you clarity of purpose going forwards. Next, turn this general aim into practical goals. Maybe you’ve noticed you’re spending quite a lot on take-aways and going out. You could target this expenditure, and aim to save a certain amount each month from it by cooking more.
Apply Goals to Your Spending
Now you have some concrete goals, you can set about applying them to your life in a practical manner. Create a spreadsheet to keep track of your spending, week on week. Make sure to create different rows for different kinds of expenditure – this way you can see where your money is going at the end of the month, and if you are sticking to your goals. If you find yourself falling short of your savings goal, you can pinpoint exactly where to cut back on spending in the coming months.