Why do I need a budget?
Put simply, budgets are a great way to help you feel more in control of your finances. If you’re unsure if you can cover your expenses going forward, or want to see where you could potentially save some money, having a budget is a great starting point.
Creating a budget takes time, but once complete, it can really help you to understand your spending and as a result, help you find a savings habit that works for you.
With that in mind, we’ve created some top tips to help you get started…
1. Have a clear idea of what you’re trying to achieve
Whether it’s wanting to pay off a debt, get a rainy day fund in place or save up for a dream holiday, knowing why you’re starting a budget in the first place will help you to stay motivated and make any changes you need. If your goal changes in the future, don’t be afraid to re-work your budget: things change, and that means that your budget will likely need to change too.
2. Think about your priorities
Having a clear understanding of what is a ‘need’ and what is a ‘want’ is key when creating your budget. Your electricity bill? That’s a need. Family banquet meal from the local Chinese takeaway because you really don’t fancy the food that’s in your fridge? As amazing as we’re sure it would taste, that’s a ‘want’.
As much as your needs have to come first, you can absolutely keep space in your budget for the things you want – it’s all about recognising how many ‘wants’ you can afford whilst still staying within your budget.
3. Know where to look
Looking at what you’ve spent in the last few months is a great way to get started on your budget and helps you to get the most up-to-date figures for some of your essential bills, such as council tax or your mortgage/rent payment. A great starting point for this is to have a look at your bank statements over the last few months.
4. Every month is different
There’s times where we may all wish we had a crystal ball so we could predict the future. As hard as predicting what may crop up can be, it’s important to try and get an understanding of how your budget might change month on month, especially if you have an expense coming up that may alter how much money is coming in or going out.
For example, do you pay your car tax quarterly, or your TV license annually? Make sure you look back far enough in your bank statements (as well as looking forward) to catch any one-off payments that might throw your budget off balance in any particular month. It is also worth having a look at what direct debits and standing orders you have set up, as this should help you catch some of those one off payments.
You should also factor in things such as birthdays or special occasions into your budget. £20 to send a gift may not sound like a huge amount, but when you have a few birthdays all in the same month, the costs can soon add up and easily throw your budget off track.
5. Budget for extras
Sometimes life throws something at you that you just didn’t expect, like a flat car tyre, a broken washing machine, or a hole in the knee of those trousers you JUST bought for your 6-year-old. Having space in your budget for miscellaneous expenses will help you feel more in control when something unexpected does crop up.
6. Don’t be disheartened if it’s not right first time
Have you just spent 3 hours creating your beautiful, colour coordinated budget spreadsheet, for it to be wrong at the end of the first month? Chances are, your budget won’t be perfect on the first go. But don’t get disheartened: The best thing you can do is to see it as a living document, and as your circumstances change, so does your budget. It may take a few months for you to get into the habit of keeping it updated, but stick with it! The more you do it, the easier and more accurate it will get.
7. Don’t forget to treat yourself if you can
Life is for living, so it’s important that you don’t budget so much that there’s nothing left over for you to have some fun. If you plan for a treat, you’ll likely appreciate it more as you know your other expenses are covered. It doesn’t have to be a grand gesture – a small treat can work wonders for your motivation and may even give your mental health a boost. So, no need to feel guilty about buying that luxury box of chocolates, as long as you’ve factored it in!
8. Comparison isn’t always healthy
Our last, but arguably one of our most important tips is that you should try and avoid comparing yourself to others – your budget should always be tailored to you and your financial situation. Just because something works for someone else, doesn’t mean it will work for you.
Ready to get going?
Creating a budget is no mean feat, but it can be really rewarding. And remember, if you're worried about money, or worried things may be getting out of your control, we're here to help.