Planning your finances can be a very daunting process however, if done right it can be very rewarding. As with anything getting started is the hardest part.
How I create my budgets
Here is how I prepare my budgets. First, I record all my income then I look through a month’s worth of expenses (most of my expenses are via debit card) so I look on my account. An alternative is keeping all your receipts then compiling the information to get the total amounts spent.
I like to record everything on an Excel spreadsheet as it is easier to manipulate the data however, writing down in a book also works.
I separate all the fixed expenses (expenses I HAVE to pay without fail e.g. monthly bills, loans repayments etc.) from the variable expenses (expenses that I can live without like cinema, coffee, shopping etc. and can easily change the amounts spent).
I then enter all my savings goals then subtract all the expenses and savings from the income amount. For me this is the most crucial point as it enables me to see if I am living within my means. If my outgoings (expenses and savings) exceed my income then cutbacks need to be made.
If my expenses exceed my income, I usually first look at the variable expenses and reduce these. I however, always leave myself an allowance because being too strict is never good and it takes all the fun out of living.
This then becomes my budget template. The template needs to have three columns, one for budget amount, actual spend and variance. As the month goes by, I try and record as much of the actual spend as possible on the spreadsheet or r I download the statement from my account and add it to the spreadsheet (or book). I like to extend this to the end of the year so that I can have a long-term view of my finances, however adjustments are made for any seasonal changes.
At the end of every month I look through the variances to see where I spent more than I had budgeted for. If the budgeted amount was unrealistic I change it or if the expenses have gone up I look for alternatives I can afford (i.e. switching to a new electricity supplier etc.)
|Monthly Income||Budget GBP||Actual GBP||Variance|
|Monthly Outgoings||Budget GBP||Actual GBP||Variance|
|Electric / Gas||65||78||(13)|
|Water / Sewer / Trash||25||21||4|
|Income Less Expenses||77||28|
Methods of implementing a budget
There are different ways of implementing a budget. One way I came across was the envelop system were you basically withdraw money then put it in envelops that have labels for certain expenses. This process is great because it teaches you to be disciplined. When the money in the allowance envelop is finished that’s it, you have to wait until the next month for more. I tried this method for a few weeks and I struggled a little bit because I generally do not like carrying cash around. Most of my expenses are paid via direct debit and there is a security risk with keeping cash.
Instead I opened a current account that I primarily use for paying expenses. All my direct debits are paid from this account and my variable expenses are paid from this account. Every month my salary was paid into my main account, I transferred my savings to my savings account and the budgeted expenses amount to this current account. My allowance also worked as the buffer in case the amounts for the direct debits were higher than I expected. For me, having a separate account for expenses pushed me to stop spending when the money in the account was finished.
Hope the above helps ease the burden of preparing a budget. Please let me know in the comments of other tips that you know of or if you have any questions. Happy budgeting!!