A solid household budget is an essential financial tool. It gives you clear guidelines on how much you can spend every week, month and year and it also shows you where you can cut back on spending.
Your budget is a record of how much money is coming in, and how much is going out. You can see what your main expenses are, and so you can keep track of your spending and make plans for the future. Sensible planning helps you to avoid sticky situations that’ll have you reaching out to the scary loan folk like wonga or its equally scary competitors.
What goes in has to go out
The first thing you need to do is to work out what your income actually is. Whether you have a salary, a weekly wage, a pension, dividends from investments, or maintenance payments and benefits, you need to tot it all up. Don’t forget to deduct tax from income sources like your salary, or from properties. Use a tax calculator to work this out.
If you get a bonus each year, or you regularly get tips or financial gifts, it’s wiser not to include this in your budget, as you can’t predict if you’ll get them, or how much you’ll get. If you are lucky enough to get a windfall, use it for luxuries like holidays, or salt it away in long-term savings instead.
Ringfence your spending
Here comes the painful bit – listing everything you spend! Group similar expenses together, so you don’t leave anything out. You could have all your car expenses – tax, MOT, tyres, petrol – in one group, and all your utilities in another. Include loan payments as well, but work out which ones you should focus on – the loans with the higher interest rates are the priority.
Of course life isn’t just about bills and the daily grind, you have to plan for fun as well. There’s birthdays, Christmas, meals out, hobbies and so on, so work out how much you tend to spend on these each year and include this in your monthly budget. Divide the figure by 12 (or 52 if you work to a weekly budget) and make sure you allow for this amount.
The more detailed your budget is, the more accurate it’ll be. Spend a day going through payslips, bank and credit card statements, benefit letters, insurance policy documents, household bills and everything else that you can think of.
Keeping track of your dosh
One great tip for monitoring spending is an expenses diary. Write down everything you spend, every day for a month. Sounds laborious, but you might get a few surprises! That coffee you grab during your commute? That magazine you buy from habit and don’t read anymore? It all adds up and could well be reduced without you noticing.
People generally work to a weekly or monthly budget, so make sure your income and expenditure are for the same time periods. If you pay your bills quarterly, divide the amount into three to see how much you need to set aside for when it arrives. Of course some bills are unexpected, which is when you might find Wonga.com comes in useful – as long as you budget sensibly to pay the loan straight back!