What is a Budget?

A budget is something which helps us improve how we handle our money. It allows us to understand where we stand financially and allows us to plan for future expenses.

If you’re in debt, a budget may help you assess what you can do in order to get on top of things and reduce debts quicker. You can find out how much you can pay realistically towards them or where you can reduce costs in order to free up some extra funds.

Are you on a budget and still struggling with your debts?
Money Advice can help – have a free chat with one of our advisors.

Creating a Budget

In order to get started with your budget, you will need to know:

What’s coming in each month

This is money coming in from anything like your employment, pensions payments and benefits. These amounts would be visible on documents such as payslips or if you look back through your bank statements.

What’s going out each month

Any spending you make on things like rent/mortgage payments, council tax, food, bills and other payments such as debt repayments.

It may help to keep your receipts to work out what you have been spending, or you can go back through bank statements in order to add this up.

What’s left over each month

Known as ‘disposable income’, this is the money that is left after all your expenses have been covered. This is calculated by subtracting your monthly spending from your monthly income.
You may find that you have a small amount of money left over this month, or you might realise that you are spending more than you have coming in.

Once you have worked out how much money you potentially have left each month, you will be able to begin to budget.

budgeting

Reducing Spending

Once you’ve carried out the steps above, you will start to become aware of your spending and it will become clearer to spot where you can make savings. Even small savings in some areas will bring bigger savings for you in the long run.

Here’s some ways you can begin to cut costs:

different providers

Consider different providers

You may be able to find yourself a cheaper deal for some of your costs, such as utility bills or mobile phone contracts.

You can speak with providers directly, or shop around for cheaper deals. There are many comparison websites available that can help with this where you can get new quotes for your needs.

shopping habits

Change shopping habits

This seems obvious, but shopping in less expensive shops and supermarkets will definitely help reduce costs in the long run.

Writing a list when undertaking your shopping is a great idea when shopping on a budget, as it allows you to stick to a plan. People are more likely to overspend without a list, as items across the shop are designed to attract shoppers and results in more impulse buying.

meal plans

Meal Plans

Food and drink is one of the biggest outgoings for households after priority bills. Costs can be reduced in this area by creating meal plans – not only is this likely to be a healthier option for you and your family if applicable, but can also save you money and time. Planning your meals allows you to create shopping lists accordingly.

Spending and Saving Apps

There are various free apps available that allow you to visually understand your spending habits, so you can start to think about where you might be able to make reductions.

Others can help you put money aside by rounding up your payments to the nearest pound and putting the excess in a savings account for you to return to. This allows you to save effortlessly and you can then use this money towards debts and other payments.

Increasing Income

This is definitely easier said than done – we recognise that not everybody has the time or ability to increase their income by simply picking up another job, or renting out a room in their home.

However, it’s always worth checking if there is any way you could increase income through things like benefits or pension payments, or if you are owed any rebates. There are various ways to check this online for free through government websites.

If you are eligible, these extra funds could help increase your income each month and you could find yourself in a much better position financially, with the ability to make payments to reduce your debts and contribute to other important payments.

Should I Be Budgeting?

There is no rule whether or not you should create a budget – it really is a personal choice.

However, it’s a good way to know exactly what you can afford and it may relieve some stress related to spending. Even without expensive life events such as debts or mortgages, it’s not a bad practice for you to create a budget simply to keep an eye on your finances.

Budgeting can help anyone understand where exactly their money is going and see if it’s possible to cut costs in any way.

budgeting

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