What is budgeting?
Budgeting is a list that includes all the money you receive as well as the money you spend.
Budgeting can be a beneficial tool to everyone. It helps you to see where your money goes too, so it is simpler to ensure that you have secured everything you have to pay.
According to The Money Charity, 350 people in the UK are declared either bankrupt or insolvent everyday, this can be down to not planning out their finances. Pre planning how to spend your money may help you in:
- not getting into debt (or helping to get your self out of debt)
- distinguishing possible money saving opportunities.
How to make a budgeting plan
Step 1 - gather your finances
This will include:
- household bills (gas, eletric, broadband, council tax)
- living cost (clothing, food, toiletries)
- insurances (home, life, pet and car insruances)
- travel costs (public transport, taxis, petrol, desiel)
- leisure costs (nights/days out, gym contract)
- debt costs (credit cards, hire purchases, loans, store cards)
- children (childcare costs).
Step 2 - calculate your total income
This will be your total monthly income you receive for any work you do. It can also include any benefits and pensions (private and/or government).
Step 3 - calculate your total spending
Calculate what you spend every month in each category mentioned in step 1.
Step 4 - do you have a surplus or deficit?
Once you have calculated your total monthly income and taken into consideration your out goings, do you have any money left over?
If the answer is yes then this is called a surplus. With the remaining funds, you should pay towards any debts you may have or alternatively transfer into a savings account.
If you find yourself with no money left, then this is called a deficit. This can result in financial difficulties for yourself - especially if you are constantly in an overdraft or reliable on credit cards.
Please note: if you are struggling with day to day finances and have out standing debt(s), there are free independent debt charities available who are always happy to help such as Stepchange, Citizens Advice and The Money Charity.
Step 5 - money for a rainy day
As mentioned in step 4, if you do have funds available after all your out goings are subtracted from your income, its a great idea to add this into a savings account - either with a bank or credit union.
Putting a bit away every month can add up fast! Whether you keep it for a rainy day or a large one off purchase, e.g. a car
Doing this will save yourself hundred or even thousands instead of financing the same car on PCP or HP.
Step 6 - cheaper alternatives
In most cases there are ways to cut costs and to save. A question to ask yourself...
Do I need the latest iPhone?
Do I need a Starbucks coffee every morning?
Do I need to eat out for lunch in work during the week?
Chances are you do not. Shop around and look for a cheaper phone or contact. Buy a flask and make a coffee before you leave the house. Pre make your lunch the night before.
The money that you would have spent on these things, put it into a piggy bank and open it at the end of the year. You'll be greatly surprised!
For more finance inspired tips, look out for my next blog that will help people understand your credit score and rating.
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