5 Easy Steps to Starting Your Budget

Posted in Budgeting on July 28, 2022

Starting a strategy to manage your money more effectively can feel like a complicated process. It’s difficult to know at first how much you’re going to have to restrict yourself to achieve your financial goals. Some people feel frightened that simply having a budget will mean losing control over their savings. However, the truth is that spending wisely is a good way to make sure that you never end up in a difficult situation unnecessarily.

As daunting as it can be to pursue financial freedom, you’ll find that once you’ve started to take the initial steps associated with better budgeting, it doesn’t take long to find your footing. Here are some of the first things you’ll need to do to start driving your budget in the right direction.

Step 1: Know Your Income

These days, it’s becoming increasingly common for people to have a variable income. If you find that you often have different sources of cash coming into your bank account or home each month, then you might need to sit down and do some planning. Calculate all sources of monthly income you need to consider, including your salary, any interest you receive and more.

How you choose to record your incoming cash depends on you. Some people stick with a standard pen and paper, while others prefer to use a budgeting app or a spreadsheet on your computer. They key to success is making sure you have an accurate number each month.

Step 2: Calculate your Outgoing Expenses

Once you know what kind of cash you’re bringing into your bank account each month, you can begin to calculate how much you spend on things like essentials and bills. Crucially, you’ll need to think about all of your outgoing costs here, including how much you spend on your mortgage and utility bills, credit card payments, bad credit payday loans and irregular expenses, like your television license.

It’s easy to mark down all the common expenses you have to deal with each month then be caught off guard by something you only pay for a few times a year. Taking the time to go through your full calendar and figure out what kind of different cash you have going out at various times will save you some serious headaches.

Step 3: Be Honest with Yourself

This might sound like an odd step in a budgeting strategy, but it’s something that a lot of people overlook. It’s common to bury your head in the sand when your finances aren’t looking as healthy as you should, or to tell yourself that you’re not really spending that much money each month. Unfortunately, this isn’t going to benefit you in the long run.

If you need to take out a personal loan for a new kitchen, don’t try to convince yourself that you don’t need to find money each month for the repayments. Don’t just tell yourself that you spend about £50 a week on food, but then forget about all the extra snacks you buy when you’re outside of home.

Step 4. Round Your Outgoings Up

This is one of the most important things you can do when you’re looking after your financial situation. When inputting how much you expect to spend on bills each month, try to round that cash upwards. For instance, instead of saying you spend around £90 a month on entertainment, tell yourself that you spend £100 and work according to that estimation.

If you calculate your outgoing expenses to the point where you’re always expecting to pay a little more, you’ll be more likely to end up with more money in your pocket, rather than straying into your overdraft or using a credit card to make ends meet.

5. Don’t Trust Your Bank Balance

As odd as it might seem, the number you see on a screen when you visit an ATM or check your finances on your banking app might not always be an accurate representation of what you have to spend. With that in mind, don’t automatically assume that you have more cash than you thought if things look surprisingly good. Remember that you may have pending payments waiting to come out.

When you’re not certain whether your balance is 100% accurate or not, make sure you have a buffer in place. This is a little bit of extra cash that you can keep aside on the off chance that you need to spend more than you expected. Gradually, this buffer can eventually become an emergency savings net.