Money management, more commonly known as budgeting, is a fundamental skill to ensure you stay on top of your finances, so you don’t wind up in debt. Debt can be quite a scary ordeal to fall into, even the word can leave people feeling uneasy, and things can quickly spiral out of your control.
Back to the Blog!
That’s why we have taken the time to create this guide on how to budget!We’ll be covering the dos, the don’ts, and some other general tips to help you on your way to being in control of your finances.
The reason why budgeting is so important.
The number one reason that having a budget is so important is that it allows you to know how much money you actually have so you can avoid overspending and getting yourself into a difficult situation. It also allows you a breath of fresh air if you often find yourself without enough money to do the things you enjoy, whether that is going out with family and friends, buying presents for birthdays or even being able to afford the essential things like any mortgage/rent payments, gas and electric or even just being able to buy food for the week. Money management and mental health problems are often linked. There are statistics from a designated charity called the Money and Mental Health Policy Institute showing that 1 in 5 people with a mental health problem are in problem debt (a sum of money owed they cannot afford to pay back). The studies also show that people with a mental health problem are 3.5 times more likely to be in problem debt than people without mental health problems. It’s a vicious cycle that we believe no one deserves to be stuck in.So, how do you create a budget?
It’s important to stay in control of your finances, you may be left wondering “where do I start?” This is the first hurdle that a lot people get stuck with. That’s because some people just look at their money as a collective amount and get immediately overwhelmed. So, how do you break it down into a monthly budget? We have set some bullet pointed steps below of questions you will need to ask yourself when creating a monthly budget:- How much money do I receive each month? (this may be from earned income, benefits, investment returns or pension)
- What are my essential weekly/monthly expenses?
- What are my optional weekly/monthly expenses?
- Do I have any money left?
- Do I want to save any of the money left over?
- Are there any events coming up that I need to save or plan for? (Birthdays? Holidays?)
- Do I have enough for emergencies? (e.g. Car breakdown, boiler repair/replacement)
How much income do I receive each month?
The first bullet point is the foundation of creating a budget. You will need to work out how much money you have for each passing week/month of the year, depending on how frequently you receive your income, after tax.What are my weekly/monthly expenses?
Now that you’ve figured out how much income you have each month, it’s time to work out your outgoings. The first and most important things you need to consider are your essential outgoings. This is where some people get overwhelmed by the number of outgoings there can be, but rest assured it’s not as bad as it may look as a lot, if not all, of these you will already be covering naturally to keep a roof over your head. The list is as follows:- Mortgage/rent payments
- Water bills
- Council tax
- Travel costs
- Gas and electricity bills
- Existing credit agreements
- Weekly/monthly food shop