In today’s difficult economic conditions it is essential that we all pay much more attention to our personal finances. In practical terms this is best achieved by setting out a simple budget of your income and outgoings. Failing this, you are just leaving things down to guesswork - however educated that guesswork may be - with the possibility that you could inadvertently slip into debt which could easily have been avoided.
Preparing a budget is not necessarily complicated, but will require you to devote a little time to the exercise to get it right
The starting point should be to determine how much your income is each month If you are an employee this should be simplicity itself - have a look at your wage slip and take a note of your net pay each month after deductions. If you are asking yourself if all this is really necessary, just consider what would happen if you had a bit of a crisis, such as needing an urgent repair to your car, while pay day was still a few weeks away. Would you need to use up expensive credit from expensive providers? If you have a budget in place, that should be avoidable. If it is not, always try and use a responsible lenders like Bluesky Loans.
If you work for yourself this may not be quite so straightforward because for most self employed people their incomes varies each month A good idea would be to quantify your income based on an average over, say, six months .
Remember to include any other monies to which you are entitled by way of things such as interest or dividends payments The most important thing is that you should look at your income frankly and objectively because it is the starting point for your budget and any inaccuracies here will affect everything else.
The next step is to take a look at your outgoings so you can get a feel for the payments you need to make each month Work out how much you are committed to pay each month on unavoidable recurring expenses such as your mortgage or rent, heat and light, car expenses - if you have one - and any other regular costs you incur each month. Having a firm grasp of where you money is going each month is key to budgeting for the future
The next stage is probably the easiest part of the whole process. You just take your expenses away from your income If this results in a minus number, it means you are spending too much each month and are likely soon to build up a debt which will need to be addressed So, why not now?
With any luck, though, the result will show an excess in your favour, so you will have to make a decision on what you want to do with the extra cash you have each month .
In most cases any surplus funds should be allocated to one of three separate areas. Any excess should probably be divided into three distinct categories Firstly, you need to set aside some money for unexpected expenses such as when your gas boiler breaks down in the middle of a freezing winter or when your car needs an urgent unexpected repair. Next, it is a good idea to allocate some of your surplus to regular savings. In the first instance these savings will be a useful supplement to your contingency fund as referred to above, but after you feel you have a comfortable enough buffer against contingent expenses, you can consider savings for investment purposes.
The last thing to do is to allocate some of your surplus so that you have some money to go out with friends from time to time It’s important to recognise that we all need to enjoy a little treat from time to time. Creating a budget which denies this is unrealistic, and means you are less likely to stick to it in the long run
Once that’s done and you have a clearer picture of exactly what you are spending your money on, it’s the right time to get down to work on the budget proper
The first step is to set out the goals or aims you hope to achieve with your budget, both in the immediate future and in the longer term. Start off by setting out the goals you have in mind for your budget. These should be short-term, such as having a bit more extra cash each month, as well as more long term goals like saving up a deposit to enable you to buy a house Long term goals are important when setting a budget as they give you an incentive to stick to the plan even when times are a little rough.
Don’t worry if you are not an ace with figures. You want your budget to be based on sound figures but that does not mean you need to be a maths genius to create a workeable plan. If you lack a little confidence with figures you could always try to create your budget using one of the terrific software packages you can now get for your pc or other device They will help make drawing up your budget so much easier. What’s more they are not expensive, so you won’t blow your budget by investing in one!
Set out a note of regular unavoidable expenses that arise every month Most of this will already have been taken care of when you went through your income and expenditure previously . These are the bills that you must ensure you pay on time when they arise and your budget should be built around ensuring this. If you do not make sure essential bills like your mortgage or card payments are met as they arise your credit report will be adversely affected and this in turn will have a detrimental effect on the goals you set out in your budget
Once you have established your budget, you need to stick to it and that requires discipline and self restraint.
It can sometimes be difficult to stick to the plan but that us why it is worthwhile setting goals. That way if you are having to make sacrifices from time to time, at least you feel you are doing it for a purpose. Here are a few other simple tips to help you stick to the plan:
It is often a good idea to record details of your daily spending as you go along . This simply helps you to focus on where your money is going and identify areas where you could perhaps make savings quickly and easily. After a while , it will become second nature and something you will probably become aware of without the need formally to record it.
If you are going on a night out - remember you have already budgeted for those little treats - try to avoid temptation by leaving your credit or debit cards at home
Don’t take your money out from your bank account several times each week. Instead, check your budgeted spending money for the week ahead and withdraw it in one fell swoop at the start of the week There is nothing quite like a rapidly dwindling amount of cash as the end of the week approaches, to concentrate the mind on your spending habits.
The last thing to say about budgeting is that we all tend to slip up from time to time It is only human nature. Just make sure you get back on track as quickly as possible and you will soon see the benefits.
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