Budgeting your life

Knowing how to create a realistic budget and sticking to it will help you manage your money better every day.

Keeping a budget may seem like a bit of a hassle but it could end up saving you a small fortune.

The basics of building your budget
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.

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.

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.

What you would 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.

Being good with your money doesn't mean thinking about it every minute of the day, it just requires good habits at key times of the month or week. Day-to-day money management means knowing when you have money, when you need to pay things off, and when you need to be more careful.The following tips can help you manage your budget:

Make a list
Start by jotting down when you get paid, and when your Direct Debits and standing orders fall. It's also useful to write down the other monthly commitments you'd already listed in your budget plan.

Consider an overdraft
If you stick to your budget, you should be fine, but there may be times when things get tight and you find you need something to tide you over until the end of the month. If this happens, talk to your bank. You may be able to add an overdraft facility to your current account.

Or, if you already have an agreed overdraft limit in place, your bank may be able to increase this, either on a temporary or permanent basis. But try not to get used to having an overdraft. You should only see it as a temporary arrangement. Instead, revisit your budget and make additional reductions where possible.

Use credit cards carefully
Another flexible form of borrowing is to take out a credit card. The interest-free period on purchases is often up to 56 days if you pay your balance off in full. Remember, if you only pay off the minimum amount, it will take you longer and cost more to clear the balance.

Good budgeting habits
Put a plan in place to reach your financial goals - whether you want to manage your money better day-to-day, save more, or get on top of debt. Here's how to get started:

Stay in control with text alerts and mobile banking
If your bank offers text alerts, sign up for them to keep track of your spending and stay on top of your account balance. You may be able to set up text alerts that will let you know if you're close to your account limit so that you can avoid any unnecessary overdraft charges. Or, you may be able to set low/high balance alerts to notify you when you should transfer money into or out of our account. Your bank may also offer mobile banking - this will be an application you download to your compatible mobile so you can manage your money anytime and from anywhere. There may be a charge for these services so you should always check with your bank first.

Set up regular payments
Pay your bills by Direct Debit or standing order. Make sure you set them up for the time of the month when you have money. This will probably be just after you get paid each month. If you contact the companies, you can often change the payment date to suit you (or spread the payments if you're paid weekly). Once you know that you've paid all your bills, you'll then know how much leftover cash you have to spend or, better yet, to save.

Get in the savings habit
Saving a little bit regularly can really add up - setting up a standing order for £20 a week can add up to over £1,000 a year.

Update your budget regularly
To budget effectively and make sure you're living within your means, remember to review your budget plan regularly, especially if there have been any changes to your circumstances.

Couples can find money a hard thing to talk about. As a result, discussions about sharing money and financial responsibilities happen infrequently or not at all.

But, as tricky as it can seem to talk about money with your partner, you should bite the bullet and do it sooner rather than later. You'll find that staying in control of the family budget can ease the pressure of keeping on top of your day-to-day finances and help you plan more effectively for the long term.

When you're trying to cope with the ever-increasing financial demands of a young family, a good starting point is to draw up a family budget for all your monthly costs and expenses, so that you can start planning for future commitments. The process is basically the same as doing a budget for just you.

Tips for developing a family budget
Pay attention

Start a family spending diary. Try keeping track of every penny that everyone spends in a month - you'll be surprised where the money goes.

Trim the fat
Take a close look at monthly expenses - you could start by checking to see if you're paying too much for your household bills. You could save money by comparing gas, electricity and home phone deals from across the market.

Shop around
Lots of retailers have clubs offering incentives and bargain offers on relevant products.

Take credit
You may be eligible for the Child Tax Credit scheme. This is a means-tested benefit for parents and those responsible for a child under 16.

Bank online
If you have access to the internet, most banks allow you to manage your bank account online. You should log in regularly to check your spending and balance. You can also go online to view your statements and/or print them off if you need to. Doing this will help you identify your incomings and outgoings. You should always check your bank statements for anything amiss and cross-reference it with your list of outgoings.

Take notes
Try keeping a spending diary for a month. You'll be surprised!

Ring-fence your money
Open an additional current account so you can ring-fence enough money to cover your bills from one account and leave the rest in your other account for everyday spending. You'll always have enough money to cover your bills, and you'll know how much you have left to spend.

Spread it out
You may find that spreading larger payments over the year (for example, your car insurance or TV licence fee) makes more sense for you. Setting up a monthly direct debit to cover these payments can help you avoid the burden of a large lump sum, which can be helpful if money is tight.

Start saving your money
If you have some spare money at the end of the month, you should think about starting to save. Because whatever crops up in your life, whether it's an unexpected bill, a sudden repair job, or a shock redundancy, having some savings squirreled away can help take care of it. There are several different ways to save, but if you want to access your money at short notice, then an instant access savings account is a good choice.

Think ahead
Avoid impulse buying! However, you need to be aware of your weak spots and allow for a little unplanned spending now and again. If you can plan your spending in advance, you're less likely to buy things you don't need or can't afford.

Bank that bonus
Put part of any pay rises or bonuses into a savings account, as long as you don't have any outstanding debt. If you do have debts, you should think carefully about whether you ought to pay these off before you ring-fence your extra money. If you're a tax payer, you could make the most of your yearly tax-free savings allowance by opening an ISA.

Live a cash-based life
Consider withdrawing a fixed amount from your account at the beginning of the week and using this for all impromptu spending. But don't carry too much cash at any one time - only take what you think you will need each day to cover small purchases.

Monitor your budget
Once you've completed a budget plan, you'll immediately become more aware of your outgoings and what you have available to spend. You should keep track of your budget each month and make sure you update it whenever things change (for instance, if your utility bills go up during the winter months).

  1. Face facts about how much you're currently spending.

  2. Make a budget and stick to it - spend less than you earn.

  3. Don't ignore debts.

  4. Plan ahead and start saving where you can.

  5. Small changes and good habits can add up to big savings.

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