A well-managed budget has many benefits, from helping you avoid overspending to giving you a buffer for unexpected expenses. It can ensure you feel in control of your money – so you can stress less and enjoy more financial freedom. If you want to take control of your finances this year, take a look at our tips below for creating a realistic budget.
Gather key financial information
Firstly, you’ll need to take a deep dive into your finances. You can do this by downloading your recent bank statements and setting up a spreadsheet to assess your financial situation. Start by establishing your take-home pay and any fixed outgoings you have each month. Typically, this should include your rent/mortgage payment, utility bills, council tax, mobile phone contracts and so on.
As you do this, consider how you could cut the cost of some of these household expenses. Then, subtract your fixed outgoings from your take-home pay to establish your disposable income. This is the amount you have left over each month for saving or spending. From here, you can start to examine your habits.
Analyse your spending patterns
Once you’ve collated your financial information, you can start to see how much you’re saving and what you’re spending each month on wants and needs. We recommend categorising your expenses to make it easy to identify areas where you overspend. For example, you could create categories like “eating out”, “family outings”, “buying clothes” or “impulse purchases”.
How this looks will be unique to you and your lifestyle. It should help you spot areas where you could reduce spending to suit your new budget.
Set your financial goals
Consider your short and long-term objectives and how a budget can help you achieve them. This may include building an emergency fund, paying off debts or reducing your spending. If you have a poor credit score, your main goal may be to boost it. This can help improve your chances of being accepted for credit like loans and mortgages.
There are many ways to improve your score, such as joining the electoral roll, checking for errors on your report and keeping your credit utilisation low. You could also apply for a credit card for bad credit, which can help improve your score if you make payments on time and stay within your credit limit.
Create your budget
Once you’ve completed the steps above, you can create your budget. The key to a successful budget is that it’s realistic and suitsyour current financial situation. Avoid setting goals that will be too difficult to achieve. If you’re struggling to know where to start, consider following the 50-30-20 rule.
The United Nations Federal Credit Union says the rule recommends “putting 50% of your money toward needs, 30% towards wants, and 20% towards savings”. “The savings category also includes money you will need to realise your future goals”.
Once you’ve set your budget, assess it regularly and adjust if your circumstances change. By following these tips, you can create a realistic budget that helps you manage your money in line with your lifestyle.
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