Budgeting for Beginners

If you often struggle to make your money last the month, or want to save up for something, budgeting is the way forward. It will make you feel more in control of your day-to-day spending and is the first step to achieving your financial ambitions.

A typical budget involves making a list of what’s going in and coming out every month and where you can make savings. It requires a bit of effort to set up, but once done, you’ll be able to set goals and track your progress towards them.

First, gather all the information you’ll need, like bank statements, bills, and receipts. There are plenty of free online budget calculators to plug in all this information – try this one from the Money Advice Service (or make your own spreadsheet if you prefer).

Setting up your budget

Start with money coming in – salary, child support, benefits & tax credits, rent from lodgers. Anything that is a consistent source of income.

Then you can subtract your outgoings. First, the essential spending:

• Rent/mortgage, council tax, utilities (water, electricity, gas), childcare
• Finance & insurance – e.g. car, house, life or health insurance. Existing debt e.g. credit & store cards, overdraft, loan repayments. Payments into savings accounts, ISAs etc
• Transportation costs – bus/train fare, car maintenance costs, fuel
• Groceries (including everyday toiletries)

Second, the discretionary spending. Every household is different, but here are some typical expenses to consider:

• Children & school costs – school uniform, activities & clubs, nappies etc
• Clothes and shoes – try to average this out over a whole year to factor in one-off costs like a new winter coat
• Home & garden maintenance – cost of home improvements, a new washing machine etc
• Pets – food, insurance, vet bills
• Health and beauty – haircuts, eye tests, gym membership etc
• Entertainment – e.g. TV, film, music, or news subscriptions
• Communications - phone bills & internet/broadband
• Leisure – meals/drinks out, takeaways, family trips, morning coffee etc
• Holidays – averaged out over the year
• Alcohol/cigarettes/gambling
• Family/friends – gifts, supporting adult children etc

Make some quick savings

As you look at these lists, you'll be able to easily see where the bulk of your money is going, and if you are spending outside your means.

This is also a good opportunity to review your direct debits and recurring payments to see if there are any services that you haven’t been using for a while or forgotten about and cancel them.

Another way to save money is using price comparison websites to check if you’re on a good deal for utilities or insurance and maybe switch to a cheaper provider.

And finally, seeing how much you spend on certain items over a month or a year can make you wish that money was going into your savings account instead. For example, saving just £5 a week instead of buying magazines or takeaway coffee would give you an extra £260 every year.

How can I reach my goals?

Work out how much cash you need to achieve your goal – this could be paying off debts, saving for a holiday or owning your own home.

Then use the insight you’ve gained by making a budget to your advantage. Once you know exactly where your money goes, you can save money on fixed expenses (where possible) and cut back on discretionary spending.

Work out how much you can realistically reduce your spending every month and build a timescale towards your goal. It’s worth reviewing your budget every couple of months – circumstances change, and you may have more income or expenses to factor in as time goes by.

Staying on track

Making a budget is easy. The hard part is sticking to it.

Get everyone in your household involved with keeping to the budget. Sit down together and make a plan that you can all stick to. Work out how much spending money is available and agree between you what you’ll each have.

It’s important to treat your budget as a living document – a budget only works if it feels realistic to your circumstances, which can change. Don’t be too hard on yourself, if you need to amend it, you can, just do what feels right.