Unexpected bills, payday loan complaints and debates over credit card limit increases...
Don’t fudge it: How to create and stick to a budget
Originally published: 21 November 2011. The Institute of Financial Planning (IFP) have released the results of a YouGov survey carried out in association with NS&I, that shows that around a quarter of people don’t create a regular financial budget.
As our debt advisors see time and again this can be very dangerous game to play with your finances. And understanding your budget is the first step to taking control of your finances.
The survey, released tie in with Financial Planning Week, found that 29% of men and 22% of women don’t set out a clear budget. As the IFP say, a personal statement of financial affairs “is the bedrock of any financial plan”.
StepChange Debt Charity find that many clients don’t have budgeting in place, and are surprised to find that they’re spending (sometimes £100s a month) more than their income allows.
Update: 21 January 2019 – there are some great tips in this article, which we’ve refreshed with updated links. Share your tips in the comments below.
A proper personal budget planner allows you to see at a glance how much money you’ve got left to spend, after all the bills, direct debits and standing orders have gone out. It also provides you with a constant reminder that you’ve only got a certain amount of money to spend on life’s little luxuries.
But despite it being common sense to write down and keep track of how much is going out (expenditure) against how much is coming in (income), it can be difficult to find a budgeting tool, fill it in, and then stick to it. The will is there, but all too often there’s a receipt that gets forgotten, or that a week goes by without it being updated, and your good intentions quickly unravel.
So how can you get into the budget habit? Follow these tips – they could save you from financial ruin!
Where can I get a personal budget planner?
There are quite a few applications, downloadable resources or budget templates that can be used to record your personal budget. These are all free to use:
- Our friends at The Money Charity (formerly Credit Action) offer Spendometer, a free online budget planner for smartphones
- The Money Advice Service has an online budget planner, along with various financial calculators
- If you’ve got Microsoft Office on your PC your can download an Excel worksheet called Personal Budget. It’s free, although it does seem a bit overwhelming at first
- If you want a budget sheet that works across multiple computers (say at home and at work) then Google Docs have many free Excel budgeting templates available. As it’s on Google Docs it can be updated from anywhere
And we’ve got an Excel personal budget template to download here!
What goes in a budget?
Start with these five steps, and remember that you need to be consistent with the timings; for example, don’t mix up weekly expenditure with monthly income.
The budgeting tools listed above will help you remember all of the categories you’ll probably need, but sometimes a piece of paper and a pen will suffice!
- Gather as much information about your regular income as possible, including wage slips, benefit statements, pensions, any board you receive from lodgers, and child maintenance. Remember that overtime, while handy, might not be a regular income.
- Make a list of all your priority outgoings, such as rent or mortgage, council tax, utilities (gas, electricity and telephone), hire purchases, and annual amounts for costs such as car tax, MOT and insurance
- Check your direct debits and standing orders by checking with your online or telephone banking service, or popping into your bank. Is there any that you can cancel, to save money?
- Get an idea of your essential expenditure by checking your recent bank statements to see how often you’re spending and what you’re buying. Don’t forget extras that might not be recorded on a bank statement such as haircuts, or milk and newspaper deliveries. Again, is there anything you can stop spending money on?
- Write down your non-priority outgoings – the loan and store card repayments, and the credit card bills. In essence, any repayments based on a credit agreement
How do I stick to a budget?
This is the hard bit – how do you keep filling it in, day after day? It depends on you, and how strong your will is.
Some prefer to have a ‘carrot’ approach to help them stick to a budget, and have a little treat after filling it in; others go for the ‘stick’ approach – it’s better to fill one in than risk the consequences (the embarrassment of a final demand, the bailiffs knocking at the door, or court action).
However you go about compiling it, you have to change your behaviour to ensure your budget is always an accurate picture of your personal finances.
- Remember to get paper receipts whenever you take money out of a cash machine or the bank and record these in your budget as soon as possible
- Keep every receipt from the shops and put them somewhere where you can’t avoid them, until you update your budget sheet
- If you buy something online try to record it in your budget straightaway. Online budget tools are especially handy for this
- If any repayment rises or falls, keep a physical reminder of the change until you’ve changed it in the budget
- Keep your budget sheet where you can see it and where it forces you to add to it. For example if you’re using an online tool put your budget as your browser homepage. Find out how to do that here
If you’ve realised that a budget isn’t going to save you contact StepChange Debt Charity or use the online debt help tool Debt Remedy. You might not have budgeted properly in the past but we can help you have a more secure budget in the future.
The IFP Financial Planning Week continues throughout this week (21st – 27th November), with a wealth of webchats, online workshops and articles to help you improve your financial situation. You can follow the IFP on Twitter and follow Financial Planning Week on Facebook.
Update (23/11): We’ve sent out a press release today noting how 26% of the general public don’t create a budget each month. As our Director of External Affairs says:
“It’s never too late to put your finances in order. Setting a clear budget now is the best way to help withstand the financial headwinds in 2012 and beyond – and will leave you in a far better position to cope with any difficulties you may face in the future”
Update (30/11): We’ve produced another blogpost on budgeting, called A beginner’s guide to budgeting, with handy tips on how to get started.