Our Guide to Creating a Budget

It’s no secret that the majority of people hate budgeting – and we can see why! Who wants to spend an hour of their free time mulling over their finances? Unfortunately it is vitally important in order to keep your finances in order and keep some control over your spending.

Creating a budget will not only give you an idea of where your money goes but also allows you to plan your future and even highlight where you could save money by reducing wasteful purchases. Here’s our guide on how to create a monthly budget, including some money saving tips:

Gather as much financial data as possible

This includes three or four of your most recent bank statements, utility bills, investment accounts and any other documentation showing income and outgoings. The aim of this is to take a monthly average- so the more months’ worth of documentation you have the more accurate representation you will get.

Take an average income

This will be very important for those in self-employment or receiving irregular income which is why it’s vital to have as many months’ worth of statements as possible, ensure you use your take home pay- not gross income. If you are in regular employment then 3 or 4 payslips should be sufficient to take an average. Don’t forget to include any monthly benefits or income from other jobs you may have e.g. weekend bar work or freelance writing etc.

Make a list of all your monthly expenses

Use bank statements to create a list of your regular outgoings; this will include mortgage or rent payments, utilities, car insurance and monthly subscriptions such as broadband, landline and sky or virgin media payments. Don’t forget to include any irregular expenses such as petrol/ diesel, grocery shopping and entertainment costs such as eating out.

Split this list into two categories – fixed and variable outgoings

Fixed outgoings are those that are deducted from your account on a monthly basis and are of similar value each month. These will generally be set up as direct debits or standing orders and will include expenses like; mortgage or rent payments, car insurance, subscriptions and current credit payments.

Variable outgoings are expenses that will differ from month to month both in value and date. These will include items such as grocery shopping, petrol, entertainment and gifts. Be honest with yourself when listing variable outgoings even if they seem insignificant to you, their importance will become apparent very soon.

Now you do the maths!

Total up all monthly income and outgoings and then subtract those outgoings from your income. If you are left with a positive number- then that’s a great start! This positive number is known as your surplus income. Knowing your surplus income gives you an indication of the areas of priority, for example: you may have enough to make overpayments on loans or even pay off existing credit card balances. If you are left with no surplus income you need to reassess your outgoings.

Reassess your outgoings

The first place to look when reassessing your outgoings is the variable column. Here’s a few areas you may be able to save money:

    • The weekly shop – supermarkets are now the most popular place to do the weekly shop. The large supermarkets have at least 4 levels of branding; premium branding, manufacturer branded, own brand and value. Premium branding being the most expensive and value being the cheapest. MoneySavingExpert have thought up something called ‘the downshift challenge’. This works on the basis that; if you usually buy premium branded products then try one level down, if you see no notable difference in quality then carry on buying the downshifted brand – according to MoneySavingExpert statistics this could save one third on your weekly shopping spend.
    • Entertainment – While everyone needs the occasional night out to ease the pressure of everyday working life – it can be expensive. We are not suggesting you should stop going out completely but there are a number of ways in which you can save on your social life. Avoid weeknights in the pub watching the football etc. a few rounds of drinks will soon add up, instead stay in or watch it round a friend’s house.
    • Petrol/ Diesel – There is no getting away from the fact that petrol and diesel is expensive, and while you may be able to save a few pence by choosing supermarket over garage fuel, there are a number of things you can do indirectly to save money on fuel. Firstly, your car; we are not suggesting you get a new more efficient one, but improve the efficiency of yours:
      • Check your tyre pressure
      • Use air-conditioning on a low setting
      • Declutter your car
      • Fill the tank sparingly
    • Now that your car is fuel efficient, you need to be too! Accelerate slowly and slow down naturally- aggressive driving is not fuel efficient. Always try to plan ahead, get the correct gear before turning into a corner, labouring an engine is almost as bad as driving aggressively.

With the majority of these things taking just a few minutes to implement into everyday life, it will be only a matter of time before you are reaping the financial benefits.

Review this budget monthly

This may take an hour or so to do, but it will ensure that you are staying within your budget. Financial circumstances will change meaning you may have to rework it; always looking for areas you can make further cuts.