Budgeting for Beginners

Not so long ago, the need to budget was perhaps thought of as something which only affected those on low incomes, but rising personal debt levels, stagnant wage growth and a high cost of living has many more of us feeling the pinch in the current climate. As a result, more and more people are having to take a closer look at their finances in order to make ends meet at the end of every month.

For those who have never had to concern themselves with budgeting before, it can be difficult to adjust. However, those who do plan their outgoings often find that simply the process of doing so makes them more aware of waste and results in immediate savings. If you think your finances could do with a little organisation, here’s our guide to budgeting effectively:

Make a list, check it twice

To start with, you need to know exactly how much you have to work with each month. This means listing all your income – earnings, benefits, tax credits, etc – in one column, and all your fixed outgoings in another. This means gas payments, credit repayments and so on should be listed, so you can take them from your earnings and know exactly how much you have to cover living expenses (including food) each month.

Look for ways to reduce your outgoings

Once you know how much you spend on bills each month, look for ways to reduce these amounts. This could mean switching your gas and electricity supplier (discounts are usually available if you get both from the same provider, and pay regularly by direct debit) or sacrificing a mobile phone upgrade for a cheaper tariff from your mobile carrier. Also think about cutting back on luxuries such as pay-TV services, to give you more room in your budget.

Be realistic about living expenses

When you have worked out how much you have for living expenses in your budget, think about how much you need to spend per week on food and other necessities – but be realistic; living on packet noodles and beans gets pretty tired pretty quickly, and you still need to ensure you get a balanced diet. After this, what you have left over is money for socialising or other one-off expenses.

Make what’s left work for you

If you have any money left over after you’ve budgeted, you can start thinking about how to make this extra cash work for you. Look at the offerings from banks and building societies with regard to high-interest savings accounts and investments. Money left in your current account is doing little – and may even be a temptation for a little overspending – while that which is invested could be increasing in value.

More useful advice on creating a budget is available from Step Change.