Most people never start a budget. It does not enter their heads. They think, why should I? They think people who do track their expenses are mean and tight, no fun to be around, killjoys.
I used to be like that, before I got into debt that is. I always tracked my finances. Wrote everything down. Even when I bought a cup of coffee or went to the pub for a pint, I wrote, I wrote everything down.
It did not stop me getting into debt however because I borrowed more than I could afford. But hat is another story. You can read about it here
Budgeting requires you change your mindset. Treat it as a tool. It is not there to stop you enjoying life. In fact, just the opposite, a budget will help you provide the money to enjoy life. If not in the short term, then in the long term. As a result, you will stick to your budget.
So how to budget your money monthly? Read on and I will tell you.
Starting Your Budget
First thing you need to set up is an emergency fund. This is a savings account only to be used in the event of an emergency such as a car breakdown or leaking roof in your home.
Next you need to know just how much you are spending each month. Most people know what they earn, but very few are aware of their spending habits. You need to pin this down.
Try downloading a budget spreadsheet. You can get some free from the internet. Be careful of viruses or malware though. Only download from a reputable website, such as a bank or other financial institutions.
Alternatively, you could create a spreadsheet in excel or Google sheets. If tech is not your thing just get a good old-fashioned pen and a sheet of A4 paper.
Preparing Your Budget Planner
Start by writing down your income, any income. Not just from your job or pension, but from a side hustle or a dividend you may have received from stocks and shares. Even if you were lucky enough to win money, write that down. Everything should be recorded.
Put your income into categories. My suggestions are as follows
- Salary
- Pension
- Unemployment or Other State Benefits
- Other
Next you need to write down your expenses. I would suggest dividing your expenses into five broad categories. Household expenses, financial expenses, Transport, leisure, and children.
Starting with your household expenses, you could divide them into the following.
- Mortgage or Rent
- Home insurance
- Heating
- Landline phone
- Internet
- TV license, cable, and satellite fees
- Management fees
- Waste
- Furniture
- DIY repairs
- Other
The next category are financial expenses. The subcategories could be.
- Savings and investments
- Pension contributions
- Life assurance
- Credit cards
- Other
Next category transport. You could divide this up into.
- Car loan
- Petrol/diesel
- Car maintenance
- Public transport
- Other
Next your leisure pursuits, be as accurate as possible here. This is where you may need to cut your expenses the most if you are in unmanageable debt. You could divide this into.
- Entertaining
- Alcohol/cigarettes
- Vacations
- Gym membership
- Other
And finally, children. You could divide this up into.
- Clothes
- Crèche fees
- School/college expenses
- Gifts
- Other
If using a spreadsheet, enter your categories and subcategories in a vertical column down the left-hand side. Next enter the months of the year in twelve vertical columns along the top of your sheet. This way you will have a visual display of your entire budget for the year.
If just using pen and paper, obtain a A4 notepad, then enter each month of the year in a heading on twelve different pages on your notepad. Enter the categories and subcategories in columns on the left-hand side of each page. You do not need to do this all at once however, just prepare a separate page at the start of each month.
By the end of the year, you will have a visual record of your income and spending every month. This will be an invaluable tool in your journey towards tackling debt.
Track Your Spending
For your budget to be in any sense worthwhile you need to track your spending. I used to enter my everyday spending in a little notebook, and I mean everything.
You could do the same. Simply note down daily what you spend. You do not have to write down every single thing like buying a newspaper or grabbing a coffee. Though I readily admit I did that. Just note down any major expenses like shopping or getting your car repaired.
Write these expenses down in a notebook. Alternatively keep your receipts, then at the end of the month enter them into your monthly budget sheet, categorising each expense.
Another way is to use an app on your phone or a spreadsheet on your computer. I recently started to record my expenses on a budget planner app on my iPhone and find it invaluable.
If you prefer to use a spreadsheet. Google Sheets and Excel are ideal. If you do not know how to use them, there are plenty of free tutorials on You Tube.
Tracking your expenses will reveal your spending habits and may also surprise you. This is a good thing. This will show how you are managing your money and it will keep you accountable.
Review Your Budget
At the end of each month, you should review your budget. You now have a written record of your income and expenses so this should be straightforward.
Identity where you are spending needlessly and where you could better put your money to effective use. If you are in debt this is an absolute must do.
You could be spending too much on entertainment, eating out or alcohol? You could be spending too little on food or clothing? You could be wondering why at the end of the month you have no money at all.
Your monthly budget should answer these questions. Now you armed with the knowledge to master your budget. Access your budget, see where you could better spend your money for the following month. Also review how you could save money.
Also review how you could save money. There may be some things you do not need to spend money on all. You could cut back on nights at the cinema or at your favourite restaurant?
Plan out a budget for the following month. Set limits on your spending in certain categories. At the the end of the following month, review your budget again to see if you stuck to your spending limits. If you, have not you may need to reassess your spending.
At the end of the day preparing a monthly budget is up you. It is your responsibility and if you are in debt, it must be the first thing to put on your to do list,
On a positive note, a monthly budget will be invaluable in straightening out your finances. So, the sooner you start, the sooner you get out of debt.
What do you think? Please let me know in the comments.
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