Budgeting can be easy. Yes, even if you suck at budgets.


A step by step guide to creating a budget

You need step by step instructions on how to start a budget that will actually work for you. Done. Grab a seat, a drink, your latest bank statement and an A4 lined notebook… we have work to do.
Unless you have a healthy cushion in the bank account, it’s not only important to start a budget, it’s important to know when money is going in and coming out.
Without this information;

o You run this risk of going overdrawn and incurring fees.
o Stressing over unexpected bills.
o Turning to expensive forms of borrowing
o Spending money on things that don’t matter & not having money for the things that you really value.

This simple way of budgeting solves all those problems.

There are a million different ways to track your budget but when you are starting out pen & paper makes things so much easier.  This is important. Just trust me on this one.   One or two months on paper, and then you can use any online tool or app you want. But start on paper.


How to start a budget step by step

Step 1 Determine your monthly income

For some, this is easy- they have consistent salaries and no additional overtime. They can just add up their salaried amounts in a month. If you have irregular income, this is enough to create headaches on its own.
If you have irregular income then write down your minimum amount of income this month. This is the amount that you’re very sure you will be making this month.
Example: If you work a zero hours contract and can earn anywhere from £600-£1,500 every month. Write down £600.
We’ll deal with your extra income in a few minutes.

Step 2 Create a monthly budget outline

Grab a sheet of paper. Label the top of it with the month and year. On the top of the paper, list the income you just wrote down.Collate your monthly budget
I call that dependable family income. You may make more than that in overtime or more sales, but that’s the amount you feel comfortable relying on.
Now write down your pay dates. I’ll walk you through this using an example of being paid twice a month on the 1st and 15th. List those pay dates on the paper like this:
Start to list every bill you have, no matter how small. Separate them by when they are due and list the name and amount due under the 1st or the 15th on your paper.

Step 3 Set a grocery budget

Now decide on a reasonable amount to set aside for groceries. If you’ve never tried to limit your grocery spending, aim high for now and reduce it later. The worst thing you can do is budget one hundred dollars a week, spend three hundred a week then give up.
Total your groceries and your bills and subtract that total from your total dependable income. Don’t panic if you don’t have a lot of extra money to work with. Just write the numbers down and have an idea where you are now.

What if I have absolutely no idea how much to set aside for groceries?

If you typically use a debit/credit card for all your purchases then go through the last 30 days of spending in your online bank account. Add up the amount for every food-related purchase you made include eating out.  If it was over £1,000 then shave off 20% and write that number down as your next month’s grocery budget. If that amount is still more than you can afford, you can attempt to shave it down more. However, I would caution that it’s incredibly hard to create lasting change with drastic cuts.

If you currently eat out or regularly purchase takeaways then it may be worth separating the eating out figure from your grocery budget. Cutting back on these expenses may increase your grocery budget slightly but this can be a quick win for finding extra funds from your budget.
If you’ve been spending £1,600 a month and eating out several times a week, it’s going to be really hard to suddenly go to £500 a month because spending £500 a month in groceries involves a ton of new routines.  Take a look at this post for some more grocery saving tips.

I want to transform your entire life over time. Not drastically cut your spending in a month and then have you relapse into exactly where you are now or worse. Always go for baby steps if you want a change to last.

Step 4 – Substitute and negotiate

Are there any exchanges you can make that would reduce your bill amounts right now? Look for things that are cheaper but are the same or better than what you’re using right now. Here are a few of the most popular examples…
• Exchanging Sky or cable for Freeview or Netflix.
• Moving to a pay-as-you-go phone plan.
• Using the library instead of buying books.
• Check a price comparison website to see if you could be on a better energy or insurance deal.

Choose one bill you can reduce and do it. Call and negotiate a new rate, or make a substitution. Reduce it and then change your list to reflect the new amount.
It’s worth knowing what the competition is charging. One call to BT saying I was thinking of moving to Sky reduced my phone, internet & TV bundle by £20 per month, whilst staying on the same package. Huge win!

You will find extra help with haggling here.  Your goal in the next few weeks is to continue making substitutions, but leave it at that for right now.

Step 5 Budgeting for extras

There are quite a few purchases that only need to be made infrequently, like Christmas gifts or holidays. The best way to handle these purchases by creating funds.  List these purchases down and set a realistic frequency for which they need to be purchased. Here are a few examples from our funds list:
Haircuts, car tax, car servicing, MOT, clothes, prescriptions, birthday presents, and holidays.
If you have room in the budget, you can add things like entertainment, date nights, kid’s sports, or even a “good deal” fund into your budget.

The easiest way to save for funds is to open as many bank accounts as needed. We have four savings accounts for things like “Vehicle Expenses” and “Holidays”. This allows us to put aside a small amount every month to have a large amount available when needed without the risk of keeping cash in the house or the confusion of having everything in one account.

Step 6 Additional household purchases

Are there any other things you need to buy every month?
If you drive a car, you’ll need to buy fuel at least monthly. Factor in how much you need to pay for fuel. If you’re not sure, check fuel purchases in your online bank account for the last 30 days.
Determine what your costs are to run your household. Do you ever think of the costs of all the little things needed to run your home? Shampoo, conditioner, body wash, hand soap, washing powder, deodorant, light bulbs, batteries, etc.? Stick with it. I know, I was the same. I have no clue. This is hard. Trust me it gets easier. It is worth it. Keep going.

If you’re not sure, aim for a monthly round some say £75 and then go from there. What do you need right now to run your home for the next month? Shampoo, conditioner, toothpaste, garbage bags, etc. Set an amount monthly to purchase all the things you need to run your house and enter that amount into your calendar. Adjusting the amount as necessary.

It may take a few months for these figures to become clear. This is where the pen & paper budget really helps when starting out.

What if I buy all my groceries and household items together?

Easy! Just combine the categories. Instead of having a “Grocery” figure and “Home Supplies” figure, you’ll have the one amount of money for “Grocery & Home”.

Step 7 Create your monthly diary or calendar

Monthly budget diaryTransfer this info into your calendar or diary…
Write in your pay days, then on your paydays, list the estimated income and list your bills on the dates you need to pay them. Or the date your direct debits leave your account.
Go through your list of necessities and start adding those amounts in on your pay dates preceding the date the money is needed. For gifts, leave at least a month before the event. For instance, my husband’s birthday is in July, so I’m going to list £150.00 on June 1st to buy his birthday present.
Your budget will be tracked on your dates.
Subtract the amounts of each bill/necessity from the income.

Extra Income – Overtime or additional not guaranteed income. On the day, you receive this money write it in your calendar or diary. Add this amount to your income for that month only.
Everything that is left at the end of the pay period can be added to your savings or used to make additional debt payments.

What if I don’t have anything left after bills and necessities?

If you don’t have anything left, go back to your lists of bills and necessities and figure out how you can reduce your bills for a while. Cutting back on trips to Costas & Starbucks. Grabbing one less takeaway a week will soon add up.

If you need to make up money, selling things on EBay is a great option. I’ve done this before and it’s a wild success every time.
Sort through your clothing and grab all the jeans that don’t fit you and sell them in a lot. Lots of clothing in the same size sell particularly well. Make the listing end on Sunday evening at about 10pm (statistically the most active time for sales).
Kids toys and any baby gear, such as pushchairs or stairgates always sell well locally. Check Facebook groups in your area.

Step 8 Saving goals

Have you and your family make a list of future goals that cost money. Holidays abroad, buying a larger house, staying home to be with the kids full-time, a new car, living debt free etc. Assign a cost value to each item.

Now think of the smaller goals. New cushions for your living room, getting a new power tool, a weekend away, a trip to the theatre. Have each member of the family pick their top 3 priorities.
List the goals in order, 1 being the most important, 3 being the least. Do you see a pattern? Are the same things in the top three? Together determine the family top 3 goals and the order in which they are achieved. For instance, if your goal is to purchase a house, you may want the foreign holiday first, since it will take less time to achieve that goal. Consider alternatives, maybe you would rather vacation somewhere less expensive so you can get the house quicker.

Next determine how strict on the budget you want to be as a family (we choose very strict, with the occasional late-night Chinese takeaway meltdowns!). Work together to remind each other of your goals and how to stay on track. Seek other sources of income to create income for additional things that you may want (a blog, an Etsy shop, reselling items on eBay this profit can help you reach your goals much quicker)

Step 9 Daily, Weekly Monthly Tracking

MAKE ABSOLUTELY SURE that you keep track of your actual bank account as well as your bill calendar. If you forget that you have bought something, your bank account will reflect differently than your calendar. Every Monday, review your account online and compare it to your calendar or diary. Note any discrepancies from the budget, adjust the amounts accordingly. Updating daily is even better until you get used to doing it.

I strongly suggest a cash only budget if you are new to budgeting. It takes the guesswork right out of it.

Make your transfer to savings on the last day of the month. I make mine right before bed. I transfer every penny from my current account over to savings so I start fresh the next day with the new months’ income.

An added benefit of having your budget in your calendar is that when you check your calendar every day, it automatically reminds you to update your budget. This system works really well with a cash only system.

Step 10 Quick budget tipsstep by step how to budget

Have separate accounts for different savings goals – but be careful if the money will earn you more interest in one account be sure to take advantage of that.

It’s worthwhile trying cash only for a couple of months rather than contactless payments. Dipping into cash may make you more aware of your spending.

Include your partner and family in your budget. Compromise is much easier if everyone understands and agrees with the long-term plan.

Include some short-term savings goals. Getting your finances back on track is important but rewarding everyone for playing their part keeps things fun. Have you stopped eating our or getting takeaways for 60 days? How about a cinema trip or date night to celebrate?

Don’t beat up yourself up if things don’t quite balance, especially in the first few months. Are you trying to cut back too much? Life happens. Be honest in your figures and keep going. If you over spend and know about it, look for small cut backs elsewhere if you can.

Stick with it. Look back in 6 months and again after 12 months. Are you in a much better place now?

What’s Next?

Once you’ve worked with this system for a while, you can graduate to an online way to track your budget. A pen & paper budget is the best way to start if you’re new to budgeting.

1 Response

  1. […] stick to certain spending parameters, you have to know what they are. Without a budget, you’re just blindly hoping you don’t overspend. Even if you set a loose budget, it’s easy to […]

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