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. Continue reading “How to Budget”