How to build a budget

There are many different money-saving hacks on the web. These tricks are fun, but learning how to build a budget is one of the best ways to spend time and save money. Budgeting is effective because it causes you to assess how much money you are earning and how you are spending it. Proper budgeting can demystify your spending and allow you to take charge of your finances.

So, if you’ve got questions on how to make a budget, and why budgeting is even important, we’re here to help. We’ve created a guide filled with all the best budgeting advice to get you started!

What is a budget?

A budget is a plan for your finances that you stick to help you meet your savings or spending goals. So, for example, you might want to go on holiday this summer, but you know you’ll need to cut down on spending to achieve your savings target. Writing out all of your expenses for the amount of time you have between paychecks helps you to see an outline of where you spend the most, and where you can cut back.

Since effective budgets are highly personalised, YOU are the best person to make your monthly budget. Tailor your budget to your lifestyle, including your spending habits, your holidays, your main income stream, and any additional freelance income.

Some people find the idea of sitting in front of spreadsheets, lists and receipts a little daunting, to say the least, and would prefer to seek help with their set-up. Whichever route you go for, there are many resources out there to help you give it a go and get started.

Why is budgeting important?

Budgeting is crucial for making sure that you don’t live and spend outside of your means. It helps you to keep track of all your outgoings, ensuring that you don’t end up in debt to cover essential payments. It can help you to avoid having to resort to credit cards or loans, and it’s one of the best ways to give yourself financial security.

How to make a budget

If you’re wondering how to budget, a good place to start is by taking a look at your current spending habits. Take a week to write down everything you purchase. This will help you see where you spend most of your money. Perhaps your daily Starbucks habit is adding £20 to your weekly food spending. Seeing your spending written out can help you confirm which purchases enhance your life, and which purchases drain your wallet.

Our first tip is to work out whether you are spending more than you have coming in. If you are overspending, it’s important to establish how much you are overspending by and where your money is going. Make a copy of Moneyboat's monthly budgeting sheet here for an easy way to start on your budgeting journey.

Also, some apps will help you to record your payments quickly and easily and they can even illustrate where your money is going through handy infographics. Some of the best budgeting and monthly spending-tracking apps out there include:

• Monefy

• Wally

• Emma

• Moneyboard

• Fudget
  

Creating your first budget

Setting up a budget for the first time is challenging because it requires you to predict your spending habits. As a result, many first budgets are too abstract or ambitious to succeed. Give yourself some leeway by building a budget that reflects your current habits. Deciding these numbers and putting them on paper will keep you on track. Additionally, many people are far too ambitious with their first budget. Some budgeters may set an unrealistic bar for how much money they can save in a week!

Setting up a budget – three essential steps

1. Save money where you can

A good place to start when creating a budget is by making meaningful savings on your bills. Look at the amount you spend on utilities, media, and servicing debt each month.

There are some incredibly useful tools out there to help you get a better deal on your gas, water, and electricity. For instance, a good tip is to sign up for a service such as Energy Monitor, by Moneysupermarket.com.

It’s also worth reviewing the streaming services and channels you subscribe to and considering whether you really need every single one.

Finally, one of the main debts we often have to service each month is our mortgage repayments. This is the largest monthly outgoing that most of us have and, for anyone who isn’t signed up to a fixed contract, it should be the first place you try to make savings. If you can move to a different mortgage provider, or if your home has increased in value since you bought it, you could be looking at savings worth several hundred pounds each month.

2. Be realistic - including ‘fun money’

Although it’s tempting to try to drastically reduce ‘unnecessary’ spending when creating a budget, you do need to allocate money for things that you may view as frivolous, such as clothes, holidays, leisure activities and eating out. If you fail to allocate a budget to these expenses, you’ll just end up spending money on these things anyway and will blow your budget.

3.Remember to account for annual expenses

There are some significant expenses that we all have to meet at certain times of the year. These aren’t monthly expenses like rent and utility bills, these are costs that only really come out of our banks once or twice a year like holiday costs, Christmas/birthdays, and annual subscriptions.

Although these costs aren’t payable each month, it’s a good idea to allocate funds to these costs each month so that money is available to pay for them when they arise.

Also, some costs are really hard to predict and even harder to allocate into categories in advance, which is why it’s really useful to create a category in your budget for ‘other’ items that do not fall neatly into one of the other regular categories.

Creating a realistic budget will allow you to save money without restricting yourself. All too often, new budgeters resolve to spend less without a real plan to cut expenses. Making a tangible budget means writing everything out, and knowing how much you can spend on transportation, groceries, and evenings out. Clarify exactly how much money you intend to save each week.

For example, if you are currently saving £100 a month, it is unrealistic to try to increase your savings to £2,000 in the coming month. If you buy takeaway 5 nights a week, it is probably unrealistic to cut this expense out of your budget. Try to save £200 this month or reduce your takeaway meals to twice a week. By making a realistic budget, you can stay motivated and start to save cash!

Moneyboat’s top budgeting tips

If you’re seeking more tips on how to budget, or you’re wondering how to build a budget that works for you, here are some handy insights:

Write it out

Visual cues are great tools to get you to make your payments on time and see your budget. Writing out your budget will help you pay your bills on time and track your finances. Use a traditional paper or online calendar to write down when each of your monthly payments is due. Seeing it on paper will help you avoid missing a payment and being forced to pay a late fee or overdraft.

Track payment dates

Track the due dates of even your automated payments to make sure you have sufficient funds in your account when your payments are processed. In addition to writing out your payment calendar, writing a budget can be very helpful. Experts recommend that you utilise Excel or Google Sheets to enter data easily.

Categorise your spending

Divide your expense categories in ways that are meaningful to you. If you are living with your parents expense-free, take utilities and rent off the list. The budget is meant to reflect your current lifestyle, and it can be changed as aspects of your life evolve. Experts suggest that people revisit and adjust their budget about three times a year to keep it up to date.

Keep it up-to-date

Did you generate a new source of income, or incur an unexpected expense? You can account for this by frequently assessing your budget. Just because your income increases does not mean you should go crazy! Keeping a budget will help keep you on track.

Be honest with yourself

After assessing your expenses, take the time to ask yourself qualitative questions about how you can spend your money wisely. Are you spending too much money on takeaways and not enough on food shopping? Asking questions will help you make a more accurate budget for next month and remind you where you can save more money.

Which purchases last month were truly investments? Will the knife set I bought help me cook at home more, or was it an unnecessary upgrade from what I had before?

What things can you cut out of your budget this month? Do I need to go out for after-work drinks every Friday? Can I suggest an alternative activity?

What is one way I can bring in more income in the coming month? Can I tutor my neighbour’s children to make some extra cash?

How can I save on my monthly expenses?

By reducing your monthly expenditure, you will be better able to avoid having to apply for short-term loans, which you may not even need in the first place. Also, trimming down your outgoings may allow you to save some money each month, helping you plan for challenigng financial times in the future.

Phone plans

Full data plans are expensive, and more and more people are opting to switch to cheaper pay-as-you-use plans or limiting the amount of data each month.

Gym membership

Why pay for a membership you are not using to its fullest? Consider purchasing some home gym equipment. Making this purchase may cost you more initially but will certainly save you money in the long run.

Declutter your home

Decluttering is a liberating experience. Consider selling items at a car boot sale. Or, for pricier objects, consider listing them on eBay or Etsy. People will pay a lot for beautiful vintage objects.

Hopefully, our guide on how to budget better has inspired you to take charge of your finances. Instead of stressing about your spending, consult your budget and feel good spending on the occasional night out! Most importantly, make your budget work for you. We’ve got plenty more money-saving tips such as how to make your money last until Payday.