Use these 5 simple steps to start budgeting today!
Step 1 - Jot it all down
Firstly, begin with jotting down your income after tax, pension, interest, welfare benefits and gifts are deducted. As a couple put down both of your incomes.
Along with this, write down all of your outgoings, click on this link for the list of things to include in a budget. Your income, leisure activities, anything that your purchase on a regular basis would be considered as a regular cost. Also note down the exact amount- don’t round up the numbers. You don't want to underestimate or overestimate.
Step 2 - Pay yourself first
You are your most significant asset- not your job, family or personal belongings. You may use the 20/80 or 30/70 rule. I personally use the 30/70 rule (from Rich Dad, Poor Dad) Allocate 10% to an Emergency Fund (ISA savings account). 10% to giving- Tithe or donation to a charity. 10% to an investment pot. That being said, if you don’t know initially what to invest in, not to worry-just put it aside anyway. Learn about investing and decide upon a long-term investment to make your money grow. Consider, property, business or the stock market.
Step 3 - Pay them After
The rest of the 70% is what you will allocate towards bills, holiday, leisure etc. If you have debts, depending on the amount and interest incurred- prioritise paying off debt over investing. Because something like a mortgage is considered a good debt, you can for that reason pay towards this and invest at the same time. In saying this, you should aim to pay off your mortgage as soon as possible, as you may save tons on interest.
Step 4 Prioritise your outgoings
See the list of priority bills and consequences of not paying them.
Step 5 - Methods of payment
Set up a standing order, direct debits or use cash (an envelope system).See how to create an envelope system to carry out payments. If you have a steady income stream, direct debits can save you money on specific bills. Moreover, once it's set that's it- you just need to make sure the money is in your account. Standing orders are useful for transferring money from your primary account into your savings, investment accounts and paying short-term expenditures.
If you have money left over from the 70% pot you can add it to your savings pot. Create different savings pot for a holiday, gifts, family, pets, hair, hobbies etc. The key is to account for every penny. It's called, 'give every penny a job'.
The type of tool you use for budgeting is all down to personal preference. In short, you may have to try different tools to find the one that meets your needs. Popular tools include Budgeting apps, Budgeting software, excel spreadsheet or my favourite... a pen and paper. I use a simple but strategic budgeting method, which I can share with you.
Get a free PDF download of our 2 page Master your Budget worksheet