How to build a budget
There are many different money saving hacks on the web. These tricks are fun, but learning how to build a budget is one of the best ways to spend time and save money. Budgeting is effective because it causes you to assess how much money you are earning and how you are spending it. Proper budgeting can demystify your spending, and allow you to take charge of your finances.
Who can create your budget?
Since effective budgets are highly personalised, YOU are the best person to make your monthly budget. Tailor your budget to your lifestyle, including your spending habits, your holidays, your main income stream and any additional freelance income. Effective budgets are built around considerations for lifestyle, income and individual circumstances. With that being the case, it makes sense that the individual or couple themselves are often the ones best equipped to tailor their personal budget plan. At the same time, some people find the idea of sitting in front of spreadsheets, lists and receipts a little daunting to say the least and would prefer to seek help with their set up. Whichever route you go for, there are many resources out there to help you give it a go and get started.
Where to begin?
A good place to start is by taking a look at your current spending habits. Take a week to write down everything you purchase. This will help you see where you spend most of your money. Perhaps your daily Starbucks habit is adding £20 to your weekly food spending. Seeing your spending written out can help you confirm which purchases enhance your life, and which purchases drain your wallet. Make a copy of Moneyboat's monthly budgeting sheet here for an easy way to start you on your budgeting journey.
Creating your first budget
Making a budget for the first time is challenging because it requires you to predict your spending habits. As a result, many first budgets are too abstract or ambitious to succeed. Give yourself some leeway by building a budget that reflects your current habits.
Creating a realistic budget will allow you to save money without restricting yourself. All too often, new budgeters make the resolution to spend less without a real plan to cut expenses. Making a tangible budget means writing everything out, and knowing how much you can spend on transportation, groceries and evenings out. Clarify exactly how much money you intend to save each week.
Deciding these numbers and putting them on paper will keep you on track. Additionally, many people are far too ambitious with their first budget. Budgeters may set an unrealistic bar for how much money they can save in a week.
Others may try to eliminate an entire category of spending from their budget: e.g., “I will spend nothing this month on transportation by cycling everywhere!” Cycling to work will save you money, but give yourself the chance to take the bus on a rainy day. If you are currently saving £100 a month, it is unrealistic to try to increase your savings to £2,000 in the coming month. If you buy takeaway 5 nights a week, it is probably unrealistic to cut this expense out of your budget. Try to save £200 this month, or reduce your takeaway meals to twice a week. By making a realistic budget, you can stay motivated and start to save cash!
Good intentions will get you halfway there, but detailed planning will help you finish the job.
Write it out
Visual cues are great tools to get you to make your payments on time and see your budget. Writing out your budget will help you pay your bills on time and track your finances. Use a traditional paper or online calendar to write down when each of your monthly payments is due. Seeing it on paper will help you avoid missing a payment and being forced to pay a late fee or overdraft.
Track the due dates of even your automated payments to make sure you have sufficient funds in your account when your payments process. In addition to writing out your payment calendar, writing a budget can be very helpful. Experts recommend that you utilise Excel or Google Sheets to enter data easily.
Divide your expense categories in ways that are meaningful to you. If you are living with your parents expense free, take utilities and rent off the list. The budget is meant to reflect your current lifestyle, and it can be changed as aspects of your life evolve. Experts suggest that people revisit and adjust their budget about three times a year in order to keep it up to date.
Did you generate a new source of income, or incur an unexpected expense? You can account for this by frequently assessing your budget. Just because your income increases does not mean you should go crazy! Keeping a budget will help keep you on track.
After assessing your expenses, take the time to ask yourself qualitative questions about how you can spend your money wisely. Are you spending too much money on takeaways and not enough on food shopping? Asking questions will help you make a more accurate budget for next month, and remind you where you can be saving more money.
Which purchases last month were truly investments? Will the knife set I bought help me cook at home more, or was it an unnecessary upgrade from what I had before?
What things can you cut out of your budget this month? Do I need to go out for after-work drinks every Friday? Can I suggest an alternative activity?
What is one way I can bring in more income in the coming month? Can I tutor my neighbour’s children to make some extra cash?
Making a budget can help you take control of your finances. Instead of stressing about your spending, consult your budget and feel good spending on the occasional night out! Most importantly, make your budget work for you.
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