When you spend all day looking after other people's finances, it can be easier than you might think to overlook your own. Even when everyone around you assumes you're the expert in all matters concerning money and debt, life can sometimes present you with unforeseen or unavoidable events.
Benefits of budgeting
Budgeting is arguably the easiest and most effective way to manage your finances. And while it may take some effort, the benefits are numerous.
It can give you control over your spending, which is useful whatever your income. You'll be able to see clearly how much money you have coming in, how much is going out and how quickly you're spending it. With effective budgeting you should no longer have to dread that end-of-the-month feeling, when you struggle to figure out why you're suddenly overdrawn at the bank.
Budgeting can allow you to put some money aside for those things in life that happen unexpectedly too. It may also save you money in overdraft charges and other penalties such as late payment fees. And as your finances become more controllable, another thing you'll benefit from is peace of mind, which means less stress.
How to create a budget plan
Drawing up a personal budget plan helps you review your income and expenses. Start by making a list of all your incomings and outgoings. Here are some pointers to help you get started.
- Make a list of all the money you have coming in, including your salary, any benefits you may be claiming, contributions from other members of your household and any other income
- For your outgoings, list all the essential things you have to pay such as rent/mortgage, utilities, telephone/broadband, financial products (insurance), personal pension, travel costs, childcare, hire purchase/conditional sale payments, court fines, child support/maintenance and other things like food, clothing and basic household items
- Also include any miscellaneous costs such as paying to see your dentist or optician, private health insurance, paying for repairs around the house, subscriptions to professional associations (including trade union subs), getting your hair cut, and even things like newspapers and magazines. Try to work out an average cost for the amount you spend on as many of these things you can think of each month
- If you're paying off any debts, list any priority and non-priority debts that you have, including any payments you're already making towards them
Our money matters guide includes a handy personal budget sheet on page 38 that can help you manage your money more effectively.
Getting your finances back on track
Once you have a comprehensive list of all your incomings and outgoings, see how they compare. If you're spending more than you're earning, take another look at your list of miscellaneous costs - is there anything you could cut back on?
Your personal budget sheet will help you see where your money is going, which means you can cut back on things that aren't essential. Once you've got a good grasp of what you're earning and what you're spending, there are lots more ways to make your money go further - here are just a few examples of the things you could do:
Spend less on utilities
Every penny helps when you're budgeting, so try to find out if you could spend less on things like gas and electricity by switching to cheaper energy suppliers. Visit 1 of the following comparison websites to find out how much you could save:
Cut down on food waste
Buying food is essential, but according to figures from waste and recycling advisory body Wrap, UK households threw away an estimated 7.3 million tonnes of food in 2015 - that's an average of £470 per household that year.
The easiest way to reduce the amount of food you throw away is to buy only what you need, when you need it. Try planning your meals for each week in advance, make a list of everything you need and stick to it when you go shopping.
Alternatively try doing your supermarket shop online - many supermarkets charge as little as £1 for delivery on certain days/times, and it means you won't have to walk past things you don't need that may otherwise tempt you.
For more ideas on spending less on food, read our article How to eat healthily on a budget.
Save on travel costs
If you're lucky enough to be able to walk or cycle to and from work, why not leave your car at home to save buying petrol. The extra exercise you'd be doing could mean you can cancel your gym membership - which would save even more cash.
If you live too far from work to walk or cycle in, try finding a car sharing scheme in your area by visiting GoCarShare or Liftshare, or find out if someone at your workplace lives near you and arrange to share expenses by commuting together.
If you have debt payments to make, once you have completed your personal budget sheet, whatever's left after you subtract your outgoings from your incomings is how much you can afford to make available.
It's important to tackle your priority debts first. These are the debts that could have serious consequences if they remain unpaid, such as losing your home or having your gas or electricity cut off. These include:
- Secured loans
- Council tax
- Utilities (gas, water, electricity)
- TV licence
- Court fines
- Income tax
- Hire purchase payments
- Benefits overpayments
- Child maintenance
When you've tackled your priority debts, you can start to look at anything else you may owe, including credit card and store card bills, unsecured loans, overdrafts and business debts. Use your personal budget sheet to calculate how much can you afford to pay towards these debts each month? Try to be realistic and don't pay more than you can afford, or you may start getting into even more debt.
If you're an ACA student or ICAEW member and are experiencing financial difficulty and would like to speak to a member of CABA's support team, contact us on +44 (0) 1788 556 366, email email@example.com or chat to an advisor online 24 hours a day.