Creating a budget

The average British family used to be 2.4 children, these days it’s 1.7 children (and half a dog). Whether your idea of a family is two adults and two children or just you and a dog creating a family budget is an essential step towards managing your finances effectively.

By gathering information about your income and expenses, categorizing your expenses, setting financial goals, determining your disposable income, and creating a budget plan, you can take control of your finances and achieve your financial goal.

1. Compare income and expenses

Make a list of all your average monthly outgoings then compare it to your current income and see if you spend more than you earn. If there is money left over every month then it’s easier for you to add this to savings. If you earn less than you spend, try to cut back on your expenses slightly.

2. Set realistic goals

Set yourself short and long-term financial goals. Short-term goals should take around one to three years to achieve and might include things like setting up an emergency savings fund or paying credit card debt. Long-term goals, such as saving for retirement or your child’s education, may take decades to reach.

3. Follow the 50/30/20 rule

Once you’ve identified your monthly income and expenditures, it’s worth using the 50/30/20 rule. This is a technique where you divide your income into three categories. 50% of your budget covers any essentials like rent and bills, 30% covers variable costs like eating out and shopping and 20% covers savings and paying off debts.

4. Cut back on nice to haves

We are all guilty of enjoying the finer things in life, but identifying what nice to have items you can cut back on can help you achieve your financial goals quicker. For example, cutting back on eating out may only save you a small amount each month, but can be a huge saving in the long term. You may be surprised by how much money you could accumulate by making one minor adjustment at a time.

5. Review your budget regularly

Once you have created your budget, don’t forget to review it from time to time, especially as the cost-of-living crisis is beginning to catch people out with rising prices. By checking it frequently, you’ll see whether you need to adjust your goals and where you could still cut back on your expenses.

Key takeaways:

• Budgeting and saving are important to be able to cover the unexpected expenses.
• Compare your average monthly income and expenses and see whether you are spending more than you earn and where you can cut back.
• Set realistic financial goals to help motivate you to stick to your budget.
• The 50/30/20 rule helps people to categorize spending into essentials, nice to haves and savings.
• It’s important to review your budget regularly as the cost-of-living crisis is beginning to catch people out with rising prices.