A well planned, calculated and maintained budget is a must have tool for all of us when analysing and ultimately saving on our finances, and it is especially useful for people that are struggling to keep themselves out of debt or those who are on a limited income.

So, if you’re finding that you’re eating through your savings and building up debts, you’re most likely spending beyond your means, which can lead to severe problems and debt spiralling in the future.

But the good news is that by taking action now and following some simple yet effective steps, you can really make a change to the way your finances fare in the future.

By planning out a detailed budget, you can give yourself a true picture of your finances and stop the dreaded overspending. But how exactly do you plan out a budget successfully? In this article will take you through a step by step guide on how to budget your finances effectively.


Step 1: Get together all your Financial Information

Before you can assess your finances and see whether you’re overspending or not, you need to have a decent overview of all of your finances and costs. You’ll need to get together all of your financial information, including your regular household bills, leisure and living costs, debts, travel expenses and any insurance policies you may have.

If you don’t know what your fixed weekly or monthly cost figures are off the top of your head, you can easily get hold of them by checking your online utility accounts or your online banking; both of which can be viewed in mobile apps for convenience. We would highly recommend registering for and setting these types of online accounts up if you’ve not already done so, as they will be very helpful in both creating your budget and maintaining it in the future. And of course, make sure to keep your login details for each account safe too!


Step 2: Calculate your Spending

Quite simply, this refers to any regular costs you have per month, including the following categories:

  • Children & Family
  • Court Payments
  • Debt Repayments
  • Health and Personal Care
  • Household Bills & Services
  • Housekeeping
  • Housing Costs
  • Leisure & Entertainment
  • One-Off Expenses
  • Other Essential Living Costs
  • Travel Costs

To properly separate all of your monthly costs into the appropriate categories, you may want to use our free budgeting sheet to help with this. And while you’re going through this process, don’t forget to factor in any one-off expenses that may come up from time to time; this may include things like one-off machinery repairs and car MOTs. Simply divide these costs by twelve and then add them into your monthly budget as a smaller monthly expense.


Step 3: Calculate your Income

Your income is quite simply the money you receive every week or month, from any work that you do; as well as any money you regularly receive from family, state benefits, personal investments or pensions.

For those that are self-employed, you would need to calculate your income based on the final amount you gain from your business once all taxes and business costs have been taken into account.


Step 4: Evaluation of your Financial Situation

Once you have gathered together all of the financial information that you need, including income, costs and one-off expenses, you can then work out whether you are in a “surplus” or a “deficit”. Of course, you’ll do this by simply subtracting your costs from your total income; and if you have any money left over, this is what’s called your surplus budget.

If you have such a surplus budget, that’s fantastic news! But, this doesn’t of course mean you’re exempt from budgeting in the future - remember; the bigger the surplus, the better!

However, once your final calculations are done, if you have a deficit, this means that you are currently spending more than your average weekly or monthly income, which will put you at a greater risk of running into financial difficulties in the future.

This is the time when you can start to take a deeper dive into your monthly expenses on a category by category basis, to see where you could or should cut back on your spending. As you go through that process, make sure to also consider getting any advice you can on saving money and dealing with debt. Using different t types of credit or dipping into your overdraft often to pay your monthly costs is a poor sign of financial health that needs addressing as soon as possible.

In the next few steps we explore a variety of tips and tricks you can use to keep a better track of what you’re spending every month, and also to help you to spend less.


Step 5: Keep an eye on your Spending

Keeping a close eye on how much you’re spending helps you to understand where your money is going of course, but it can also affect how you spend your money too. Noting down every penny you spend may sound like overkill, but it can really make you less likely to splash out on something you don’t need. It can be easy to forget smaller purchases as well, but if you don’t keep track of them they can quickly add up.

Make sure to stay on top of your monthly spending by checking your bank account routinely for outgoings, or by trying one of the vast array of free budgeting apps that are now available via smartphones and tablets.


Step 6: Cash Not Credit

When using your debit card to make all of your everyday payments, it is much easier to lose track of just how much money you’re spending: especially when using a contactless card. Instead of always using your debit card to make payments, try instead withdrawing a set amount of cash for your spending each day or week. This can encourage you to spend less than you usually would, as you have a physical amount of cash at hand that can act as a kind of deterrent to spending more or withdrawing more cash once it’s gone.

Step 7: Look out for Money Saving Methods

Once you have your income and spending budget sorted, and have started to go through your monthly costs category by category, you may have a good idea as to what areas you can try and save on; in almost all individual budgets there is always an opportunity to save a bit of money per month, even if it’s only a relatively small amount.

You might find that there is a cheaper TV package out there that would allow you to save every month on a current deal, or maybe you’re overspending on some of your essential living costs; for example, on your weekly food shops. By really analysing your spending and discovering new ways to cut down on your monthly outgoings, you could free up extra money to bring your budget from a deficit into a surplus.


Step 8: Optimise your Budget

Once you’ve got into the habit of creating your budget, you should be looking to review it as much as possible.

Many of the factors that make up your income and monthly costs could change constantly. If your income has gone up or down because of a new job, for example, then your budget will immediately be outdated and will need looking at once again; as your budget may no longer match what you’re actually spending.

Likewise, as fixed costs for certain services you use each month or items you regularly buy may go up, you need to have a clear idea how those price changes are impacting your overall budget, and whether or not they’re taking you into deficit or surplus.


Hopefully with the help of this article you now have all the information and tools at your disposal to be able to create your own monthly budget and can go and have a go at making one for yourself – We genuinely believe you’ll find it to be a valuable and possibly eye-opening project!