Budgeting for beginners: Simple Steps to the perfect budget

budgeting for beginners

What is a budget? Do I need one? How do I get started? Those are all really simple questions, but often overlooked! In this post, I’m going to answer each of those questions the only way I know. By drawing on my own experiences, and sharing the lessons that I’ve learned along the way. Hopefully, by the end of this post, you’ll be on your way to creating your own simple budget.

First question! What is a budget?

In its most simple form, a budget is any plan that you make for your money over a defined time period. e.g. monthly, weekly etc. It’s basically designed to tell your money where to go. It should list your income and outgoings, and will give a clear picture of whether you’re overspending, breaking even or living within your means.

Do I need a budget?

Yes, everyone needs a budget!

Do you have an income? Do you spend money? 

By making a plan for your money, you can ensure that you have enough to pay for the things you need and want, as well as saving some cash for a rainy day.

Single people, families, students, millionaires, mums, dads, I’m even going to teach my kid how to budget. It’s a valuable life skill, as believe it or not, money makes the world go round 🌍

How do I get started?

Well, you’ve made a great start by finding this post, so good work! I’ve found that the best way to make sure you’re on the right track is to read, research and learn what works for others. Then adapt it to suit your own lifestyle, and learn as you go.

I’m a millennial, so I get a lot of my information and education from the good ol’ World Wide Web (the internet,  in layman’s terms…) as well as learning from life experiences as I go. There’s so much valuable info out there, you just have to know where to find it.

But I’m a nice person, so I’ll share all that I’ve learned with you!

unsplash-logoColin Watts

Budgeting for beginners, how to create your own simple budget

1. List all income

List all money that you have coming in regularly. This could be:

  • Monthly or weekly wages
  • Any benefits or tax credits that you receive
  • Side hustle earnings
  • Other income such as child maintenance payments

2. List all regular bills

Look at your bank statements and note down any bills that you pay every month (or week if you’re working on a weekly basis). It’s important to get this right, so don’t just guess!

I’ve included a list of some common ones below:

  • Mortgage/rent
  • Council Tax
  • Utilities: Gas, Electricity, Water
  • TV and entertainment Subscriptions: such as Sky TV, Netflix, NOW TV, Amazon Prime, Virgin Spotify, Audible, Tidal etc.
  • Other Subscriptions: Gym, Sports, Hobbies, subscription boxes (there are wayyyy too many for me to list them all…)
  • Broadband
  • Landline
  • Mobile phone
  • TV Licence (if paid monthly)
  • Childcare; such as nursery, childminder, after school clubs etc.
  • Car tax (if paid monthly)
  • Car breakdown cover; such as AA, RAC etc.
  • Commuting costs; such as bus or rail tickets
  • Insurance: Car, Home, Pets, Life
  • Regular Prescriptions
  • Other management fees; such as tendency management or grounds management
  • Savings/Investments

This list should cover the most common household expenses, but of course, there may be others which are personal to you, so make sure you go through those statements to make sure you’ve covered them all!

Bills
unsplash-logoSharon McCutcheon

3. Work out annual expenses

These types of expenses are usually referred to as sinking funds.

They are things that we don’t need to pay for every month, but they’re expenses that we know we will have to fork out for throughout the year. Some examples:

  • Birthdays (and don’t forget cards and postage!)
  • Christmas and other costly holidays
  • Dentist visits
  • Optician visits
  • Clothing
  • Holidays/Trips

As a rule, if I’m going to be charged any interest for spreading the cost monthly, I prefer to pay it annually. However, if you have included this expense in the above monthly bill section, then you don’t need to count it again now. Of course, you could always start saving up the funds to pay these annually and save yourself the interest cost! 

Here are a few more examples of possible annual expenses:

  • Car Insurance
  • Car tax
  • Home Insurance
  • Pet Insurance

Add up the total cost you expect these to be for the year, and then divide by 12 months (or however many pay-periods you’re working with). 

E.g. If you buy presents for 10 friends over the year, and spend £40 each then it works out at £40 x 10 = £400. Amount to save monthly = £33.33

unsplash-logoAlexander Mils

4. List all debts

Make a list of any outstanding debts such as credit cards or loans. I’ve grouped these separately as I’m of the opinion that these should be paid off as soon as possible. Once you’re debt-free, every single penny of your income becomes your own and the possibilities become endless!

Each debt will most likely have a minimum payment each month, so you should make a note of that amount and make sure that it’s always paid on time. You can hopefully factor in some overpayments as well, once your budget is all set up.

5. Factor in other expenses

You should allow yourself some spending money for things such as food shopping, personal spend and entertainment. The amount you allocate here will largely depend on how much you have left after bills, sinking funds, debts and savings are paid.

unsplash-logoAlex Holyoake

6. Set up your savings & investments

I’m no financial adviser, and we will all have our own savings goals so I’ll share with you the types of savings accounts that I have set up. These are all easy access accounts which pay a moderate amount of interest. I don’t expect to make huge gains on this cash, as it will be saved for less than 5 years but it’s nice to know that there’s a little bit of interest being paid!

  • 3-6 month emergency fund in an easy-access account
  • ‘Sinking fund’ account (see point 3 above, this should be where you save the extra cash to cover those annual expenses)
  • account for any short term savings (cash required in less than 5 years, eg savings for a new car or home improvements

If you have some money left over after covering all essential bills and minimum payments on debts, then it’s time to start saving! Once you’ve done the math you should see where you can make some cuts if you’re not able to save as much as you’d like. 

7. Do the maths

Once you’re sure that you’ve got an accurate picture of your income and outgoings, then it’s time to track it all and see where you can make improvements.

I like to work with a simple spreadsheet, but there are loads of free resources with free budget planners that you can print out or copy for yourself.

Subtract your outgoings from your income, and hopefully you will see that you’ve got enough coming in to not only cover the essentials but to stash some cash into savings or investments as well. 

If you find that you’ve got money left over then well done! You can see if you can make any further cuts, and set up regular payments to your savings accounts!

If your numbers show that you don’t have enough income to cover everything then it’s time to take action! Is there anything you can cut from your budget, or is there a way to increase your income? 

unsplash-logoCrissy Jarvis

A few things are crucial to get right in your budgeting journey:

Planning – Take 15-30 minutes before each payday and tell your hard-earned cash where to go, instead of hoping it’ll last until the end of the month. The initial set-up of your budget will probably take a bit longer than this, but once it’s done you’ll soon get the hang of it and it’ll become a lot easier.

Discipline – The most perfectly drafted budget will fail if you don’t have the discipline to stick to it. Sometimes it’s hard to stay on track, and it’s OK to wander off a little bit but you need to figure out how to motivate yourself to stay within those limits.

If you think that this is all sounding a bit formal, then maybe you’re right. In fact, every person or household should see themselves as a small business which has income and outgoings which need to be kept in order. If you start looking at things that way, then the whole process will make a lot more sense.

As always, let me know your thoughts and if you’ve got any more tips to add to this list then I’d love to hear them. You can email me here, or hit me up on Instagram

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