This post is a how-to on a budget. How to make one and how to work out what will work or not. I’m a massive fan of budgets. I know there’s people out there who don’t have a budget, but I’m definitely not one of them (Is now the time to admit I do a yearly budget before the year starts? Maybe). A budget makes sure that I don’t overspend on a category, helps me to know what our outgoings are so can plan accordingly and, last but most important of all, I know where our money goes.
So, how do you create a budget? It’s pretty simple really. You start off with the basics. You work out what you bring in each month. In our household, we combine our finances so it’s a total of what me and my husband earn combined. That’s how much you can spend during the month, to remain in the green. Don’t forget any extra income you might get alongside your salaries. At the moment it’s just salaries for us, though I’m hoping that will change at some point.
The next step is to work out the fixed outgoings for your household. These include your mortgage/rate payment, council tax, water rates and various insurance payments. All of the things in this category have the same amount of money go out each month. The amount is fixed.
After fixed outgoings, you need to work out your variable outgoings. These are things can fluctuate each month, or aspects that could be reduced if necessary. So, groceries, fuel, phone/internet, entertainment, going out, clothing, misc. and savings amounts are in this category. But, to work out a budget properly, you need to set a goal for your spends each month. So, for us, our grocery spends target for each month is ￡150. So, when working out our budget, for groceries we budget ￡150 a month.
Now, if you do not know how much you spend in each of the variable categories, now is the time to start to monitor! I do this via a spreadsheet that I update every time I spend something. You can do this, or you can keep track on your phone (there are some good budget apps around) or you could update every week. I like to do this every time I spend something so that I don’t forget what I’ve spent and also it keeps my spending and budget up to date at all times.
In our budget I also do a savings target for the month ahead. Each month I set myself a target for savings and mortgage overpayments (see here for the latest one) and this also goes within our budget – after all, it is money that we’ve earned that is earmarked for something/somewhere else. I find that when I include savings in our budget, I’m more likely to hit that goal.
If you add up all of your fixed and variable outgoings, they should come to less than your income(s). That is how a budget should work. If your outgoings are more than your income, then you will soon have a problem. But, as it’s a budget, you can tweak it until it works for you. The whole point of a budget is to make sure you are spending within your means but it has to work for you. The bigger the gap between outgoings and income means you will hit your goals sooner rather than later.
So there you have it; how to set up a budget. I’m more than happy to share my spreadsheet template for anyone who would like it – please just mention in the comments below if you would like that and I will share it.
Do you agree with this? Do you have a budget? If you don’t, how come?
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