More than half of households in the UK keep a regular budget – that still leaves a significant number who don’t have any kind of budget or a clear idea of their income and outgoings.
How a budget can help you
If you’re in financial hardship or experiencing money worries, a budget is a solid first step to getting your finances back on track as it can help you get a clearer picture of your monthly spending and where you might be able to start making savings. However, it’s not a silver bullet and should be seen as a tool you can use to enable change rather than drive it.
If you’re in debt, budgeting is often the first thing a debt adviser will recommend so you are in a better position to start paying some of it back. Read our blog on dealing with debt if you’re worried about your spending or financial situation.
Now, you might be thinking: ‘I’m not in debt and I have a good income – why do I need a budget?’. The truth is, budgets aren’t simply for people on low incomes or who struggle with their finances. In fact, if you’re a high earner you’re even more likely to be spending frivolously or beyond your means, and setting a budget could unlock savings which you could use for a large purchase such as a second home, a holiday or home improvements.
Things to consider when setting a budget
The most essential thing to bear in mind is to be realistic! When allocating money for food or leisure activities, don’t underestimate your spend as you’ll only end up overspending anyway. Be objective and look thoughtfully at your finances to see if there are any areas you can ‘trim the fat’ and make some quick wins, but don’t expect to go from spending £150 per week on food down to £25 because it’s simply not realistic to expect dramatic savings!
Most budgeting tools give a month-by-month view of your finances, enabling you to work out how much you can spend and how much to save in a given month. While this is often a good idea, it may mean that other large or unexpected purchases, such as holidays or car insurance for example, will go unnoticed until they suddenly hit and skew your finances for the next two months.
For day to day expenses such as lunches or take-out coffees, you could set yourself a monthly pool of cash allocated to daily or weekly spend, rather than trying to budget for each individual item.
To avoid this, you should aim to set a monthly budget at least 3 months in advance so you can look ahead to any large expenses that might be coming your way.
If you can afford to start saving and putting a bit of money away each month, it can be well worth it. Give yourself a buffer against unexpected events or costs or save for a large purchase such as a new car – sending this money straight into a savings account when you get paid may help you ‘forget’ about it and less likely to start dipping into it.
How to set a budget
There are a range of tools, templates and websites out there that can help you set the perfect budget for your needs and depending on whether you’re budgeting for yourself or your whole family. Or, you could just set up a simple spreadsheet on your phone or computer and work it the best way for you. Below is a range of free tools to get you started: