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How to budget
Drawing up a budget is an important way of staying in control of your finances. You will be able to work out how much you can really afford to spend, save and pay towards any debts.
Where to start
First draw up a list of your income and expenditure. It's best to calculate this as an annual figure because monthly expenditure can fluctuate.
Start with the bills, including rent or bond payments, gas and electricity, tax, water, phone, internet, insurance and car expenses. Don't forget any debts or child maintenance payments.
Then think about everyday expenses, such as food, household items, petrol, pet food, cigarettes, alcohol, entertainment, holidays and eating out. Finally, include an estimated amount for unexpected costs, such as new furniture or car and household repairs.
After working out your total expenses for a full year, calculate your monthly or weekly expenditure by dividing by 12 or 52.
Next, calculate your income. This may include earnings, interest on savings or investments, benefits or tax credits, rent from lodgers or family.
Next, calculate your income. This may include earnings, interest on savings or investments, benefits or tax credits, rent from lodgers or family.
If you have money left over
If you have anything left at the end of the month, put it in to a savings or investment account rather than leaving it in your bank or frittering it away.
It is vital to build up a rainy day fund (at least three months' wages) for emergencies, and you may also want to save for a new car, house deposit or other large purchases. You could also put excess funds towards your pension, overpay your bond or clear off debts.
If you are spending too much
If your expenses exceed your income, take action to avoid falling into debt. Don't be tempted to take out a credit card or personal loan to fund your lifestyle. Think carefully about how to reduce your spending and boost your income.
First, look at ways to save money. Can you switch utility, insurance or phone providers to get a better deal? Can you spend less at the supermarket? Can you have your heating on less? If you are in debt, you need to cut down on everything apart from the bare essentials.
Set yourself targets for expenditure based on what you can afford. Then try to stick to it. You could even take out different bank accounts for each area of expense to help you to avoid overspending.
Also, think about how to raise additional funds. Consider taking on extra work. Find out if you can claim any benefits or tax credits, and make sure that everyone who lives with you and earns money is paying their share.
Keep your budget updated
Finally, your income and expenses will fluctuate over time, so it is important to review your budget regularly.
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