Often, we can be told that it is a good idea to budget our money. However, we have probably never been taught how to do this and there may be a lot of us that just have no idea how to set a budget. This is something that it is well worth knowing how to do, although there are different ways of doing it.
A simple way to budget
It can be a good idea to start by noting down what income you have. You will need to work out your budget so that this is the amount of money that you have available to you to spend. You cannot spend more than this, but if you spend less, you can use what is left to save, keep towards next month or pay off a loan.
Then you need to work out what you have to pay a specific amount for. This means things such as rent, loan repayments, contracts, direct debits, utilities, council tax etc. There are some things that we have to pay for and they are fixed amounts. These can all be noted down at this stage as things you have to pay out for. It is possible that you could reduce some of these costs if you switch providers which is it worth investigating, but at this stage you do not know if you can save so just note down the amounts you normally pay. Then there will be things you pay for which are not fixed amount but you still need to buy. Things like food, fuel or transport to work, gifts etc. These are still things that you will need to buy you might be able to spend less on them. These are the things where you can start to set a spending budget. For example, if you shop at a cheaper supermarket, make food instead of buying take away, travel on a cheaper bus rather than train or taxi, drive less, only make necessary journeys etc.
Hopefully you will still have some money left at the end of this process. You should now have enough money budgeted to cover the cost of all of your essentials. If you have some left over you can choose to buy some more things, save it or keep it towards next month.
How to make it work for you
It is important to make the budgeting work for you. For example, you may have some months which are always dearer than others. This could be because you have a car service once a year, you have birthdays to buy for, you pay an annual water bill or insurance policy or things like this. This means that you will need to think really carefully about whether you set a budget that is always the same or set one on a monthly basis, which changes every month to accommodate that extra spending. It might be that you will need to save money some months to put towards saving for future months.
You will also need to be flexible as prices will change. Prices tend to go up with time and so you will need to allow for this. It could be that you will be luckily enough to have a pay rise as well, but this may not be the case and so you will need to allow for this. If you can put some money into your savings account when you can, then this could help you out if you need it. You should also stay aware of what products you are buying that are not necessary. Then you will be able to cut back on these if you need to in order to make sure that you do not overspend. Comparing prices frequently can also be helpful as it means that you are aware of what costs more so that you can switch over to cheaper brads or suppliers so that you are not paying more than necessary.