moneybasics UK : Budgeting : Budgeting : Setting Goals

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A budget can help you get in control of your finances. It is a plan that helps you identify anticipated income, expenses, and savings on a regular basis. Budgets also enable individuals to identify the level and importance of their expenses and help us see exactly where our money goes. It is also important to set and keep in mind your goals while preparing your budget.

Why do I need to budget?

Making a budget helps you to:

Reduce stress, by planning and monitoring your spending habits
Know whether or not you are in control of your finances
Know how much you have coming in each week or month, and how much you have to spend
Cut back on unnecessary spending
Save money
Use your money to work towards your goals in life

How do I create a budget?

Creating a budget is not difficult, although it may take some concentration, and a bit of work. And you do not need to be a financial or maths genius to do it! The following tips will help:

Be honest - Don't try to skip certain items, or underestimate your spending
Making a budget involves keeping a regular check on what you are spending. Keep a record of where your money goes. Use the moneybasics Spendometer to help you keep track of where you money goes, especially for small items like drinks and snacks, magazines and bus fares.

Steps to Create a Budget

Use the moneybasics Calculator or download the moneybasics Budget Form and follow the steps below to create your budget.

Work out your income. Make sure you are taking your net income i.e income after tax. The pro-forma example shows you the sort of headings your income could come from
List your regular commitments. This includes things like Council Tax, mortgage, rent, heating, insurance, etc.
Add up what you are spending on normal day-to-day living expenses – this includes food, clothes, transport and entertainment. If it helps, download the moneybasics Spendometer for free onto your mobile phone so you can keep track of your money while you’re out and about.
Record what you spend on occasional items - such as birthday and Christmas presents, repairs or decorations to your house or flat, holidays, etc. These items are spent on irregular occasions but it is helpful to put in an average monthly amount.
Make sure that the income and the spending is for the same period. For e.g., if the income is a monthly figure, the spending should be a monthly figure as well.
Total your income and total your spending. If the spending is more than the income, it may mean that you need help with your finances. If you need advice with your budget, you can contact Credit Action on 0207 436 9937
It is important to review your budget monthly and adjust it as your income and expenses change

Defining / Prioritising your Goals

To manage your money effectively, it is important to prioritise your spending. This may vary from person to person but a general guide could be:

First, pay your bills. Make sure your most important expenses are covered each month - for example, rent or mortgage, utility bills and your car payment
Your day-to-day needs, like groceries and transportation.
Occasional costs come up quarterly or yearly. Make sure you have put money aside to finance those.
Save some money for emergencies. Unexpected situations can occur and it is helpful to have an emergency fund
The next step in saving would be to set aside money for future goals such as buying a house, education etc.

Further information

Try the moneybasics Budget Calculator or download a moneybasics Budget Form to help create your budget.

For more help on creating a budget, you can contact Credit Action on: 0207 436 9937

Try the FSA's Financial Health Check and find out tips for a healthier financial lifestyle - now and in the future.