How to Budget

Budgeting can feel a bit like pulling teeth – painful but necessary. To avoid that slippery slope into debt, it is best to become the master of your own finances. It’s easy to look away – out of sight, out of mind – but take control now, and make room for guilt-free treats!

Step One: Determine Your Income and Expenditure

It’s a simple equation: if your expenditure exceeds your income, you’re in trouble. If you list your expenditures you can compartmentalise them into two categories: necessary and unnecessary. For example, TV license (unnecessary), water bill (necessary). Once you know what you don’t need, you can start making reductions in luxuries.

Step Two: Save

A great idea is to set up an emergency savings fund. Even if you contribute only £10 of your salary a week to this account, the saving will put you in a great position to accommodate surprise expenses that you’d otherwise have to charge to a credit card you can’t afford to pay off. Slowly increase your weekly savings amount, until you have a nice nest egg.


Step Three: Set Financial Goals and Reward Yourself

This may be: ‘I will reach my £1,000 target in my emergency fund account.’ Once you meet these targets, don’t be afraid to reward yourself for your hard work. Hopefully, with enough budget adjustment, you’ll be left with enough spending money to still enjoy nights out or treats.

Step Four: Make Lists

List your outgoings; all the things you need to pay for, however small. Keep a spending journal, and enter your expenditure every day. Use whatever software is available to you to draw up a budget chart. If your computer doesn’t have any, a good old excel sheet works wonders.

Step Five: Forget Windfalls

Windfalls like end-of-year bonuses are not to be relied on. Gamble on windfalls, and you may find that they are nothing but a puff of smoke.

Step Six: Take Out Money

Your budget should tell you how much money you need to take out every week. Keep this safe in your house, and don’t run back to the ATM as soon as you run out. This will help you stay under budget.

Step Seven: Cut Large Expenses

This may break your heart, but you might have to forgo your annual holiday abroad this year. Cut big expenditures, and introduce them later, once you have a handle on your finances.

Step Eight: Hoard Financial Statements

The more information you store, the better you will be able to budget. Stockpiling bank statements and bills will keep your finances a reality and help you work out your monthly average.

Step Nine: Ensure You Spend

This is your last concern – spending money. It’s what you have leftover, once the necessities have been paid for. You can use this to pay for clothes, or going out to restaurants, or fun days out. You may find that in the beginning, this amounts to very little, but this should just be another factor to motivate you to become spending-savvy.

This guest post has been written and contributed by finance blogger Zoe, on behalf of price comparison site SO Switch.