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 in my budget planner every night 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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I love having a budget. I use Quicken software to manage ours but there are lots of ways to manage this process. From excel spreadsheets to Mint to YNAB. There are lots of options!
Yes, I manage on MINT. This was one of the things I was avoiding for the longest time but was one of the first things that needed to be done to confront our debt and work towards getting out of it. And it still is!
Updating an Excel sheet whenever I spend money absolutely works wonders for me! After a while, you’ll start to notice that you know the exact amount of spent money in every category by heart, which is tremendously useful when you’re about to buy something and you’re not sure if you’ll hit your savings rate.
Please do share your spreadsheet, I was planning on doing the same. Could be an easy way to learn from one another.
Great tips!
I do the tracking of spending. I have made budgets before, but I find just the tracking to be more useful. I usually over budget in area like utilities and I find it just better to track and pay extra to loans at the end of the month.
I have used Mint previously and the problem is since one store is a super store it doesn’t differentiate items between my different categories and the chain also has gas stations and it puts those purchases all into groceries as well.
I’ve always been a big fan of Google docs so use this to plan my budget. I think the trickiest part is remembering to edit this when income and costs change
Mint always looked like a nice idea…
Google docs is a good tool too; easy to share if you want to! I think remembering the little details can sometimes be tricky, though I try and save all my receipts to make that easier. Does Mint work in the UK?
I think budgeting is integral to financial stability, and yes, I do have a budget. I love this outline, it’s short, simple, and to the point, great job!
Thanks Josh! Nice of you to stop by 🙂 I’m definitely in the camp that budgeting is key to financial freedom.
It’s awesome you make a yearly budget before the year actually starts. Talk about enthusiasm =). I used to just track my spending, but for this month, I’m actually trying to actively budget. I’ve been updating my spreadsheet after every transaction to stay on track. I think it helps a lot more.
Yes, enthusiastic is one word! Good to hear you’re using a tracking system; I think they’re so helpful in terms of staying on course.
I find that setting a budget for a vacation is hardest. Like when you’ve already spent $500 on a plane ticket and $300 on lodging, it’s hard to avoid spending a few bucks here and there on frivolous things.
Me too, as I always feel like you don’t want to go overboard but at the same time, you’re on holiday! Thanks for stopping by and commenting 🙂
I have a great spreadsheet I set up after watching a YouTube video about it. Fixed expenses go at the top and variable at the bottom. Then I fill actual spend next to it.
Thanks for stoping by, and sounds like a great system!
Very informative post. I like to have a budget so I know what all my outgoings are and how much I have left over.
Nice to have a reward every so often to keep the motivation going.
I am new to the whole concept of budgeting as my other half does it but am keen to play a more active part in this going forward. Any recommendations for a planner I can use on my iphone and ipad? Love your blog btw 😊
I don’t know of any planners that you can use on an iPhone – sorry! There are apps that you can use to budget with which might help.