How to budget
In this guide, we'll talk you through budgeting - a skill that could not only give you a clear image of where your money goes each month, but could also help it last longer.
Setting a budget allows you to work out if you spend more than you earn, and if so, how much more. It also allows you to see what you can afford to spend after you have paid for all the true essentials - to ensure you live within your means.
Budgeting essentially involves making a record of all the money you have coming in and all the money you have going out. This lets you prioritise your most important outgoings and make sensible, informed decisions about where the rest of your money goes - after those essential spends.
Money coming in will include your wage, benefits, pension or other income. Be sure to investigate any tax credits or benefits you may have available to you as these can top up your income - full details can be found at the HM Revenue & Customs website.
Listing your outgoings should start with regular necessary spending such as rent or mortgage payments, council tax, any insurance you have, your mobile phone contract, your basic living expenses and any other regular and irregular spending. Often, it is the last two categories that people find most difficult to keep a track of, and as such it is often here that you'll find a few surprisingly expensive - and often unnecessary - spending habits.
You might find it helpful to break down all your spending into categories, which might include:
To budget effectively, you have to be completely honest with yourself about what you spend!
When you have two comprehensive lists of your income and outgoings, total them up and see if your income covers your outgoings. If it doesn't, you need to make some cutbacks. However, it's important to identify where those cutbacks should come from, and prioritising the importance of your outgoings will help.
You need to be clear about which outgoings constitute essential spending, and which are non-essential. Prioritise things like your rent, mortgage, loan repayments and essential bills, then see how you can cut down the rest of your outgoings.
'Essential outgoings' basically applies to the money you have to spend in order to have a home, basic clothing, heat, water, food and - if applicable - transport. Non-essential outgoings are things like holidays, eating out, buying presents for people and so on - and it is here where we can usually make cutbacks. However, there could be savings to be had on your essential outgoings, too: compare energy prices or check whether you are entitled to any council tax benefits, for example.
Simply listing all the things you spend your money on can give you a better idea of what you could go without in order to save, but here are a few tips on lowering your non-essential spending:
If you spot something you are tempted to buy, ask yourself if you really need it, and whether you can realistically afford it. Just stopping to do so could make you realise you don't need it.
If you decide you do need it, and you can afford it, check whether it is available at a lower price anywhere else before you hand over the money.
Simply being more mindful of your spending habits will help you towards achieving a healthy balance between your income and outgoings.