Before we get into the nitty gritty of HOW to write a budget, first of all I think it’s important to explain why we might NEED to write a budget.
If we are aiming to pay off debt, or even if we are debt free but seem to have little to no money left at the end of the month, we are going to want to know exactly where our money is going. In the words of Dave Ramsey, ‘We need to TELL OUR MONEY WHERE TO GO, instead of wondering where it went’.
If you’ve ever attempted to write a budget and on paper it says you should have £300 a month left over, but you never actually do, you need a budget. In fact, whether you’re in debt or not, I believe that everyone needs a budget! Having a budget enables us to pay off debt faster and more consistently, build savings and invest more.
With that being said, lets look at the steps we need to take when writing our first budget.
Before you start:
-Make sure you have an hour or so when you won’t be interrupted. Don’t do it when you are in a rush or stressed. Not only will it become a hassle to even start writing a budget, but you’ll also miss out things because you are not focused.
-Get all of your paperwork together. Namely, your last 3 months bank statements. This is so you can look back on your expenses and Income to have a baseline from which to start, and also see what dates your Direct Debits and other payments come out.
It may also be handy to have your payslips for the past 3 months, although you may be able to get that info from your bank statements if you are paid via BACS.
-Make sure you include income and expenses for not just yourself, but also your husband, wife, children, pets and anyone else that you are responsible for.
-To work out how things stand before writing your first budget, I recommend this online Budget Calculator from the Citizens Advice Bureau https://www.citizensadvice.org.uk/debt-and-money/budgeting/budgeting/work-out-your-budget/budgeting-tool/ as it will prompt you for what to include and you can print and save the results.
This will give you a basis from which you can write your first proper budget.
Once you have filled in the Budget Calculator above, you’ll get 1 of 2 outcomes; your income is LESS that your outgoings, or your income is MORE than your outgoings.
What if I have more outgoings than Income?
The good thing about writing a budget is that you can see where all of your money is going, and more importantly, where your money is being wasted. So, if your outgoings are more than your income, you either need to increase your income or decrease your expenses. For many people, the easiest category to cut down on is the food budget. Meal planning definitely helps with this, and you can see how I meal plan here http://themoneyfreak.co.uk/2018/04/01/how-i-meal-plan/
Now you can write your new budget.
Work out if you are going to write a weekly, 2 weekly, 4 weekly or monthly budget. This is individual to every person and will probably depend on how often you get paid. I get paid 4- weekly as well as monthly, so I do a fortnightly budget.
Be realistic! If you have been spending £800 a month for food, reduce it slowly. Don’t decide that the new food budget will be £300 a month. You’ll end up throwing in the towel and blowing the budget. Maybe decrease it by £50 for the first month and again by £50 the next month.
Don’t over complicate it. Just a piece of paper with Income on 1 side and Expenses on the other is perfectly fine. I’ve been budgeting for almost 2 and a half years and still use this method!
It is 100% normal not to get your budget right the first, second or even third time round! If you forget something the first month, just add it in to the second months budget so you don’t forget it again. Don’t give yourself a hard time about it, you are learning!
Budgets are fluid and they regularly change. The budget that you write this month may not work for you 6 months from now, or even 3 months from now. As your job, situation and family changes, so will your budget. I’ve had to change mine as children have left education, when we’ve added a new pet to the household and our diets have changed. There may be many other reasons why your budget will change from month to month.
For those of you who have an irregular income, Emma over at My Debt Diary has a great blog post on how to write a budget here
Once you’ve written your budget, how on Earth do you stick to it? To see what helps me, read my post http://themoneyfreak.co.uk/2018/04/20/how-to-stop-spending-when-paying-off-your-debt/