Monday, 3 June 2013

How to... Create a Budget

Budgeting. That thing you know you should do, but you never quite get round to? You have some rough figures in your head on how much you spend but those figures never quite add up?

Maybe you do have a budget, but it's sticking to it that's the problem? Or you get your timings wrong and forget about those final direct debits that go out towards the end of the month?

Is there always a little too much month at the end of your money? I know that feeling!

So, this week was the week I sat down and got serious about our finances. Our circumstances have changed a number of times over the last six months - we've gone from two healthy incomes to one healthy maternity pay packet, added in job seekers, saw that maternity pay packet slowly reduce to statutory, added in another lower income. Despite all of this, our expenditure was greatly reduced by living with in-laws so at times we felt very rich! Then after a couple of large, essential purchases, we felt very poor. We've saved, we've paid off debt, but have we budgeted? No. So we probably could have done more.

And now we're starting to think about moving out so we really had to take a look at where our money was going and what we could afford.

What is a budget?
In its simplest of forms, it's where you add up your income and break it down between all your financial obligations. If there's more outgoings than there is income, you work out where to cut back and then you stick to it!

How do you do it?
Personally, I have a spreadsheet that lasts a whole year. Why does this work?

  • We have some direct debits (e.g. magazine subscriptions) that only go out once every six months and they always catch me by surprise.
  • You might have a large payment (e.g. MOT, holiday) which would be more manageable if you set money aside each month rather than finding it a stretch at the time.
  • You can see how your savings and debt repayments accumulate over the course of the year which is a great motivational tool!
I thought I'd share my spreadsheet with you so you can use it too!

Monthly Budget BLANK.xlsx

Click the link to download your own blank version.

This spreadsheet contains all the formulas to add everything up for you. It will:

  • Add up your income and outgoings, and then subtract one from the other
  • Work out your tithe (I believe in giving 10% of my income to the church, if that's not your thing, just ignore it, or why not consider giving a percentage of your income to a favourite charity?)
  • Work out how much you're transferring into savings throughout the year
  • Work out how much you're paying off a credit card throughout the year

The only thing I didn't work out was interest payments on the credit card and savings - bit too complicated for me! But there is a box where you can manually enter it and it will add it on to the totals for you.

If you want to adapt it to suit your own needs (e.g. add in an extra row for another income / expenditure) then the formulas should automatically adapt to accommodate the change.

The great thing about this is that if one thing changes (e.g. your electric bill goes up, or you receive a bonus) then you can just amend that cell and everything else is worked out for you. Simples!

This spreadsheet gives you a great overview of what you're monthly outgoings are, and how that adds up over the course of a year. Of course, the challenge is sticking to it, but we'll save that for another post!

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