Budgeting our finances is something that most of us have to do and whilst it can seem a monotonous task to sit down with a spreadsheet and your bank statements, there are good reasons for creating a monthly budget.
With costs continuing to rise across many aspects of daily life, it’s now even more important than ever to create a budget that you can stick to and that will help keep your finances healthy, even in these somewhat turbulent times.
We’ll explore why keeping on top of your spending is crucial and the ways in which you can create a budget you can stick to.
Why is a budget so important?
Creating a budget will allow you to identify exactly how much you have coming in each month and how much you’re spending. This will highlight where you can cut back and will help you to achieve your financial goals. These could be saving a certain amount of your income every month, paying off any debt or planning for your future, for example, for your retirement.
How to create a budget
Exactly how you go about it is up to you, but you could use a spreadsheet, an app or just plain old pen and paper. There are a few basic factors that you’ll need to note when creating your budget. These are:
- Your overall income
- Your essential outgoings (bills, loans, rent, mortgage, travel, food etc)
- Your non-essential spending (nights out, lunches, luxury items)
Once you’ve subtracted your essential costs from your total income, you’ll know exactly how much you should have left for those non-essentials.
Repaying debts
If you have any outstanding debts, it’s a good idea to clear these as soon as possible, to get you in a better financial position and potentially be able to add to your savings pot.
Identify what you’re paying on any loans and work out if you could switch payments to benefit from lower interest. For example, in some situations, it might be possible to pay off a high interest debt by using a personal loan, meaning you could owe less in the long term. However, you’ll need to work out if this is a suitable option for you and make sure you can afford any new monthly repayments.
Identifying potential cutbacks and establishing savings
There will likely be areas where you could be saving money, even if it’s just a small amount. For example, by reducing lunches out, cutting back on subscriptions or shopping around for groceries. Anything you do put away can be added to a monthly savings account to help provide a safety net.
It’s worth remembering that if you are struggling to repay debt, to afford your regular bills or with any other financial issue, it’s important to seek help from a profession such as Citizens Advice.