Developing your budget

Keep track of your finances and start saving

  • Face facts about how much you’re currently spending.
  • Make a budget and stick to it – spend less than you earn.
  • Don’t ignore debts.
  • Plan ahead and start saving where you can
  • Small changes and good habits can add up to big savings.

Drawing up a budget is something that’s personal to you and your circumstances. To make an effective budget plan, be honest and make a note of what’s coming in and what’s going out each month.

Once you can see where your money goes, you'll be able to work out how much money you have left to spend after you've taken care of your bills. That way, you’ll not only be saving money but making decisions that could change your finances for the better.

Understanding your money

What’s coming in?

To draw up a budget plan, you should start by jotting down all the money coming in to your household each month, such as salary, tax credits, child benefit, etc.

What’s going out?

Next, you should write down all your household’s basic living expenses. This includes regular commitments, everyday spending and occasional spending. To help you do this, use your bank statements.

Your budget list

Commitments

Regular financial commitments are those you need to pay every month such as the monthly repayment due on a mortgage, a second mortgage if you have one, rent, electricity, gas and so on. Remember to factor in any annual, quarterly or one off commitments, such as car tax and insurance. To calculate this, take the yearly premium and divide by 12.

As part of this, make sure you work out how much you owe your creditors. Enter a total for all your priority debt payments and your monthly payments to loans, credit cards and other credit debts. Priority debts are those that could have serious consequences if they're left unpaid (for example, your mortgage or your rent). You should not risk losing your home, for instance, or being without electricity, gas or water.

Everyday spending

This list should include anything and everything that you spend money on during a month, whether it's pocket money, pet food, eating out or public transport. Try keeping a spending diary for a month so you can really see where your money is going on a day-to-day basis. If you identify areas where you're overspending, ask yourself if that spending is absolutely necessary and look for ways to cut back.

Don't forget – be honest with yourself and try to include everything you spend. Whether it's an impulse buy when you're out shopping or a regular mid-afternoon latte or a quick takeaway because you didn't feel like cooking, those seemingly small daily purchases can soon add up.

Occasional spending

This type of spending doesn’t happen very often but you need to make sure you factor it into your budget all the same. This could include money spent on Christmas, birthdays, holidays and clothing.

Set your budget goals

What would you like to save?

Write down how much you would like to save each month. You should also jot down some future savings goals, for example, a deposit for a house or a nest egg for your retirement.

Once you have all your income sources and outgoings listed (including debts and savings), you can see what the difference will be and how much you have left over to spend. A good way to check how much you spend in total is to check the ‘total debits’ versus ‘total credits’ on your monthly bank statements.

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Further guides

See more guides on budgeting.

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Current accounts

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Sticking to your budget

Now you've developed your budget, learn how to stick to it.