Budgeting for Beginners: How to Get Started

Making the decision to track and reduce your spending is easier said than done. Although we all want to save a little cash from time to time, there’s a big difference between telling yourself that you’re going to have all the money you need for a house deposit by the end of year, and achieving that goal.

Although the word “budget” can be enough to strike fear into the hearts of many people who have had bad relationships with their cash in the past, the truth is that learning how to manage your money is a crucial goal. If you can make a habit of tracking how much you earn and how much you spend on a regular basis, you’ll find that you’re wasting a lot less time wondering where all of your income went.

So, how do you get started?

1. Start with the Basics

First, you’ll need a list of all your incoming cash, and all of your outgoing expenses. Remember, your outgoing expenses include everything from your council tax and your mortgage, to your water rates, your insurance costs, and more. Anything that you pay for each year should be accounted for – even the irregular expenses that you don’t need to deal with every month.

Once you know where all of your money is going, you can start to separate your expenses into categories like “needs” and “wants”. The aim will be to cut down some of the costs in both of these areas, without leaving yourself feeling too overwhelmed.

2. Have a Goal

To figure out how much money you need to set aside in your budget, you’re going to need a goal. Simply saying “I want to save money” is an honourable goal in itself. However, if you’re going to go for something basic like that, then you’ll need to put a number on how much money you want to save, and when you want to save it by. This will help you to track your progress.

For instance, you might decide that you want to put £2000 in your bank account by the end of the year. This will mean putting a certain amount of income from your monthly pay into your savings account. Once you work out how much you can afford to deposit, you can make reaching your goal easier by automating the saving. Ask your bank to automatically transfer the money you want to save from your current to your savings account each month.

3. Find the Easy Wins First

There’s a chance that you won’t automatically have enough money left over in your bank account to achieve your savings goal immediately. That means that you’ll need to look through your budget and figure out where you can make some changes. For instance, maybe you can start in your “needs” column and find out whether switching from one electricity provider to another could save you some cash on a new deal.

You don’t necessarily need to give up all of the things that you like to improve your financial situation. A lot of people find that things like changing their broadband provider, or simply writing a shopping list for every time they go to the supermarket is enough to make a massive difference to their saving habits.

4. Focus on One Big Change at a Time

If you do decide that you need to make some major changes to your discretionary spending, then don’t try to remove everything from your budget at once. You might need to cut down in several areas, like reducing the amount you spend on clothes, entertainment, and takeaway food. However, you should focus on one issue at a time to start with.

This way, you can make small steps that don’t make you feel unhappy about the changes that you’re making in your life. Giving up all of your entertainment spend at once can seem like too much of a challenge. However, cutting down from four cinema visits a month to two is much easier.

5. Review Regularly

Finally, once you have your plan in place, remember that you can always come back and change it if you need to. Life changes, and your budget might change with it. Making sure that you take the time to sit down with your bank statements and decide whether you need to adapt anything in your current strategy is crucial.

Remember, you make changes to your budget as often as you choose. However, if you’re trying a new strategy, it might help to give yourself a few weeks to settle into it before you give up.

Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk. Omacl is a broker, not a lender, and does not make credit decisions.