Are trying to save for a holiday or pay off your financial debt? If the answer is yes then a budget is the first place you should start to reach your financial goals. Taking the time to create a budget can help you to save thousands of pounds a year and keep on top of your bills. By working out a budget, it can mean you are less likely to end up in debt or be caught out by unexpected costs and money emergencies.
This post will demonstrate to you how to create your own budget and how to maintain it in 5 easy steps.
Step 1 – Determine your income
The very first step to this process is to work out your income. Maybe you get paid weekly, bi-weekly or monthly. Include any extra income you make from surveys, your side hustle or work bonuses that you may receive. You should also include additional funds such as child support, dividends or money you make from rental income.
Creating a family budget can be difficult, and sometimes it’s hard to spot exactly where your money is going. Most people are well aware of the monthly costs of their rent or mortgage payments, their utilities and even their food costs. However it is things such as transportation, clothing and recreational activities that are much harder to track. Creating a family budget with the Budget Planning Calculator is totally easy, and the free tool will allow you to see where your money is going, and how you can save for your future.
Step 2 – Calculate your outgoings
The second step is to work out your outgoings. This includes everyday essentials such as household bills, living costs, travel costs and leisure etc. I calculate my expenses by referring back to my bank statements and receipts. Then I enter all of the information onto a spreadsheet which is divided into categories.
Add up everything you have spent in the past 6-12 months and divide by the amount of months. This will give you your average monthly spend for each category.
Step 3 – Cut back on unnecessary spending
If you are spending more money than you have coming in, you can solve this by cutting down on unnecessary spending. Do you really need to buy that takeaway latte every morning? Instead you could make a coffee at home and take it in to work in a travel mug. Or you can swap going to the cinema for watching some television at home.
I saved hundreds of pounds by bringing my own lunch to work instead of popping out to the shop or ordering fast food. As well as saving me money, I was also looking after myself better by eating healthier food brought from home. You can save money by cancelling the gym membership you never use or save money on your bills by switching providers to a cheaper alternative.
Now you know where your money is going every month, you should be able to cut back enough that you have at least 10 percent of your income left over every month to put into your savings account.
Step 4 – Set savings and debt payoff goals
In order to create realistic savings goals, you must determine that you are making more money than you are spending. If you do have some surplus left over after paying all of the essential bills, you can put this money towards a savings account or paying off debt.
For example, if you are spending £10 every week on takeaways, this adds up to £520 a year that could be put towards your dream holiday instead!
Step 5 – Track your budgeting progress
By tracking your progress and seeing your savings account balance build up it will keep you motivated and stay on track with your budget.
Once you have completed all 5 steps, you are well on your way to creating your budget and becoming a money saving god!
Step 6 – Prepare for unexpected costs
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Not everything can be predicted in life. Sometimes, things will come up and you’ll need to have the money in your emergency funds to cover those costs.
It might be a good idea to start putting a little money aside so you can cover those unexpected costs when they come up. You should also take the time to shop around and save cash.