Setting out a household budget may seem like a boring and laborious job that won’t really make a difference to your finances or life. However it is vital to make sure the money you worked so hard to earn all month is being put to the best use possible! Saving money can be difficult but a clear budget will highlight areas of attention. In under an hour you can have your budget drawn up and after a couple of months of following the budget it will become second nature to you and should improve your money management. Follow our step by step guide to drawing up a household budget and you will have it done in now time, (if you have access to a computer then excel is a great program to draw up your budget)
1. List your monthly income
- If it is your wages then the figure you would use is your net income – this is the amount that you take home after tax and national insurance is deducted
- If it is a self employed income then you would use the figure which you draw from the business
- Don’t forget to list all your benefit income including child benefit and tax credits
- If you get your income on a weekly basis convert the figure to monthly by multiplying the weekly payment by 52 and then multiply by 12.
2. List your expenditure
- Detail all your expenditures; it is easy to start with the bigger expenditures like your mortgage or rent, utilities, transport, food and repayments of debt like credit cards and personal loans.
- Don’t forget to include annual expenses like car tax and insurance, you can include them in your expenditure by dividing them by 12
- If you can’t remember all your expenditures looking at your bank statement might help you remember where you are spending your money
- Remember to include your expenditure for socialising, cigarettes and clothes shopping – it might surprise you how much you spend in these areas when you see it in black and white
- Keep all your receipts for a month, you may find that you are spending more in some areas than you think
3. Deduct your expenditure from your monthly income (Income – Expenditure)
- If you have money left once you do your deduction then this is called your disposable income.
- If this is a relatively high figure then you should seriously consider paying more to any unsecured debts you have to clear them off quicker. This is particularly important if you are only making the minimum payments to your credit cards. The good news is once you have paid off your debt you will have more disposable income at the end of the month!
- If you do not have any unsecured debts then it is very worthwhile considering a savings plan if you don’t have one already. As a minimum we would recommend that you have 3 times your monthly income in a savings account so if you encounter any unforeseen circumstances you have some savings to cushion your finances.
- If your disposable income is a minus figure, i.e. you have more going out than you have got coming in then you need to seriously look at your expenditure to see where you can cut back. It may be a simple case of reducing your spend on clothes or socialising.
- If you can’t find an area to cut back and you have reduced your expenditure to the minimum possible then it may be a good idea to consider a financial solution such as a debt management plan or IVA which can reduce your payments to your credit cards and loans so you can afford your essential expenditures like your mortgage/rent, utilities and food.
The important thing to remember about budgeting is that no matter how much or how little money you have it is important to figure out where you stand so you can maximise your money with a savings plan or reduce your outgoings with a debt management plan. For more help and advice on budgeting or to see if you qualify for a debt management plan you can contact Refresh on 0800 121 48 63 or simply complete the form below and an advisor will be in touch with you.
