Do you go from one day to the next not knowing whether your card’s going to be declined at the till? Is your bank account hovering on or below zero before the end of the month? When you first start working it’s easy to let money burn a hole in your pocket. You live month to month spending every penny but ten years later this probably isn’t the best way to carry on.
Creating a budget will help you to rein in your spending and put some money into savings. Even if you haven’t got something in mind that you want to save up for at the moment, creating a cushion to fall on when you need it is always a good idea. If you start putting away 10% of your earnings you’ll soon have a tidy sum that can turn into a house deposit or tide you over should you lose your job. Afterall, you only have as much job security as the length of your notice period.
How to create a budget
The first step in planning a budget is to look at your outgoings by going through past bank statements. Take a look at your direct debits and see what you’re paying out on a regular basis. I find it easier to budget on a monthly basis so if you have any annual or quarterly bills, work out how much these equate to per month.
This is what I have in my outgoings:
- Council tax
- TV Licence
- Contents insurance
- Car insurance
- Travel / fuel
- Grocery shopping
- Mobile phone
- Bank charges (I have an added-value bank account that has a monthly fee)
A few years ago I spoke to someone at a debt advice company who helped me put together my budget. I already had one but wasn’t including some items that the women suggested I should be. These were clothing and health and dental care. Even people who organise IVAs don’t expect you not to buy new clothes from time to time. I think they suggested £20 per month, so we’re not talking designer labels here, just subsistence items. I didn’t even think about health or dental care because I don’t often go to the doctor or dentist and don’t have regular prescriptions, however accounting for these costs, perhaps putting the money aside, is a sensible idea. We created a contingency account that we pay into each month to cover this sort of thing. You don’t want to put the cost of that root canal on your credit card, do you?
Once you’ve worked out your regular, essential outgoings look at your income and work out the difference. This will tell you how much you can afford to save and how much you have to spend. Ideally, you should aim to save 10% of your earnings but this will obviously depend on how much you earn versus what your outgoings are. Nobody want to save all their residual income. Life would be very dull.
To help you create your own budget, I’ve created this blank budget template that you can copy and paste into your own spreadsheet or download in the format of your choice (in Google Sheets, click File, Download as).
The formulae are already in there so all you need to do is fill in the rest. This budget template is based on my own spreadsheet. Once you’ve created your own, feel free to adapt it as you see fit. It’s got to work for you, otherwise there’s no point. In my spreadsheet, I have an extra column for my husband and a column that adds up our two columns. This works best for us because we split the cost of the bills and the idea is to both be paying roughly the same out each month.
Once you know how much money you have to spend each month and week, think about how you are going to stick to this. If you can trust yourself to keep a mental note of your spending then fine, but personally that’ll never work for me. When I was saving up to go travelling I only gave myself £25 per week spending money. I did cheat occasionally as I decided that if I had to buy something that was to be used while travelling it didn’t count. Oops!
I took out the £25 cash and left my cards at home. It’s amazing how much less you can spend when you physically have to hand the money over. Plus you can always see how much you have left for the rest of the week. Another option is to open a second current account and transfer your spending money over monthly and only use that card. If you choose this option, setting up regular mobile alerts with your bank account balance would be a great idea. I know my account with Lloyds Bank lets you do this, I don’t know about other banks but most, if not all, have mobile banking apps anyhow so you can regularly check your balance.
- Don’t try and cheat your budget, you’re only cheating yourself at the end of the day.
- Be honest about your outgoings and what is essential. You might think you need that £3 Starbucks each morning but this should really come out of your spending money rather than be included as an outgoing.
- If you have debts, concentrate on paying these off first before saving money. It’s pretty pointless to put money into a savings account when you’re paying interest to a creditor.
- Set up a standing order so that your savings come straight out as soon as possible after pay day. This means that you’ll be used to not having that money and won’t even think about it.
- If you don’t think you can trust yourself to dip into your savings for something less than essential, consider a savings account that is not instant access. Some accounts you have to give 30 or even 60 days notice to withdraw money. This is ideal if your savings goals are long term but if you’re putting money away for emergencies this probably isn’t a good idea. There are accounts that are instant access but you are limited to how many withdrawals you’re allowed each year, maybe check those out.
- If you want to understand where your money goes each month, an insightful exercise is to go through your bank statement for last month and put everything into categories, e.g. food, clothes, coffee, eating out. This can help you to identify areas where you can make savings. Which leads onto my next tip…
- Look to reduce your outgoings. Check that you’re on the cheapest tariff for your energy bills, shop around for your broadband supplier and home insurance, and if you’re always buying branded groceries try some alternatives and see if you notice the difference. There are only a few branded things I swear by, one is Fairy Liquid Platinum (the best washing up liquid around!), but otherwise I’m usually happy to buy the supermarket own brand.
Creating a budget can seem like a boring thing to do but it really does help. Sticking to your plan is the most important thing. Whether you want to be debt free, travel more or buy a house, budgeting can actually change your life.
Share your experience of budgeting in the comments below. I’d love to hear from you.