How to set up a budget
The first step to taking control of your finances is doing a budget. It will take a little effort, but it’s a great way to get a quick snapshot of the money you have coming in and going out.
Over half of UK households keep a regular budget. Most say it gives them peace of mind about how much they are spending, and makes them feel better about life in general.
Setting up a budget means you’re:
· Less likely to end up in debt
· Less likely to get caught out by unexpected costs
· More likely to have a good credit rating
· More likely to be accepted for a mortgage or loan
· Able to spot areas where you can make savings
· In a great position to save up for a holiday, a new car, or another treat
What you need
To get started on your budget, you’ll need to work out how much you spend on:
· Household bills
· Living costs
· Financial products (insurance…)
· Family and friends (presents…)
· Travel (car costs, public transport…)
· Leisure (holidays, sport, restaurants…)
You can save your information and come back to it anytime you like.
Alternatively you can set up a budget using a spreadsheet or just write it all down on paper. There are also some great free budgeting apps available and your bank or building society might have an online budgeting tool that takes information directly from your transactions.
Getting your budget back on track
If you’re spending more than you have coming in, you need to work out where you can cut back.
This could be as easy as making your lunch at home, or cancelling a gym membership you don’t use.
You could also keep a spending diary and keep a note of everything you buy in a month. Or, if you do most of your spending with a bank card, look at last month’s bank statement and work out where your money is going.
Get everyone involved
Get everyone in your family involved with keeping to a budget. Sit down together and make a plan that you can all stick to. Work out how much spending money is available and agree between you what you’ll each have.
Cutting your household bills and your mortgage
For many of us, household bills make up a large chunk of our spending. The good news
Life is unpredictable so try to review your budget and your spending if there’s a change, or at least every couple of months.
You might get a pay rise, which means you can save more, or you might find your household bills increase.
Paying off loans and credit cards
If you have loans or owe money on credit cards it usually makes sense to pay off the debt that charges the highest rate of interest first.
· Store cards, which normally charge the highest rates of interest
· Credit cards
· Personal loans from the bank, which normally charge a lower rate of interest than credit or store cards
It is important to make sure you don’t break the terms of your agreements. So even if you’re focusing on paying down another debt, you must pay at least the minimum on any credit cards and your monthly required payments on any loan agreements.