For many people, understanding your finances and budgeting is more essential now than ever before. With the cost of living crisis, many households are being squeezed with price rises impacting every aspect of life.
Even if you're not squeezed for money, paying less for the things that don't really align with your goals means you could have more to save for the future or simply to spend on the things you really want to!
Getting to grips with the fundamentals of budgeting is crucial for taking control of your finances and achieving your financial goals. It helps answer key questions such as, do I spend more than I earn, what can I afford to spend each month and does what I spend align with what I actually want to spend it on?
Want to read?
The article below covers everything you need to know as well as some questions to get you thinking.
Prefer to watch a video?
No problem! Watch this 6 minute video where Ed will take you through each of the steps.
How to Create a Budget in 5 Simple Steps
1.Assess Your Current Financial Situation
This is always the first step I take with clients and is often the most eye opening. It’s so common not to know where your money is going and that makes it too easy to slip into spending habits that aren’t serving you and your goals.
Start by gathering information about your income, expenses, debts, and savings. What’s coming in and what’s going out?
Don't guess this part, it is essential to have a very clear view of where your money is going. Track your spending habits for a month, use bank statements, receipts, or even budgeting apps to compile this information.
Questions to think about:
Are you happy with where your money is going each month?
Is there anything you would want to change?
Are there any quick wins you could change right now - eg. cancel that subscription, set up a direct debit to a savings account?
2. Set Clear Financial Goals
Determine what you want to achieve with your money in the short term and long term. Whether it's saving for a family holiday, buying a home, paying off debt, or planning for retirement, having clear tangible and time framed goals will guide your budgeting decisions.
Questions to think about:
How much money will you need for your goals?
When will you need that money by?
3. Create a Realistic Budget
Based on your financial situation and goals, create a budget that allocates your income towards different categories such as housing, transport, groceries, utilities, debt repayment, savings, and discretionary spending.
Be realistic about your expenses and make adjustments as needed to ensure you're living within your means.
Questions to think about:
Do some research to find average figures as a starting guide.
What's a reasonable amount for each of the categories for your family's needs?
There may be reasons why a little more or a little less than average would be right for you and your family.
4. Continue to Track Your Spending
Once you've established your budget, track your spending regularly to ensure you're staying on track.
Use budgeting apps or spreadsheets to monitor your expenses and compare them to your budgeted amounts. This will help you identify areas where you may be overspending and can make adjustments accordingly.
Questions to think about:
Would you prefer an app to help support you (especially if you don't have much time), or would you prefer to use receipts collected over a month or so?
5. Review and Adjust Regularly
Your financial situation and goals may change over time, so it's essential to review and adjust your budget regularly. Take stock of your progress towards your goals, reassess your priorities, and make any necessary changes to your budget to reflect your current circumstances.
It will be different for everyone, but generally people review budgets every few months and goals every 6-12 months.
Questions to think about:
When do you want to review your budgets and goals?
Top tip - Put the first date in the diary straight away to make sure you do it!
Finally, remember that budgeting is a gradual process and you will won't get it right on the first go, that's totally normal. Follow these 5 simple steps to creating a budget to get your started, be patient with yourself and celebrate your progress along the way.
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