2. Calculate Your Income And Expenditure

Having collated your paperwork it is now time to spend some time summarising all your monthly income and expenditure (things you pay out for). Do this on one piece of paper or on your personal computer so that you have a snap shot of your monthly personal finances.

3. Priority Spending

Using a highlighter or marker make a note of any expenditure that is absolutely essential to your day to day living and which if not paid would result in serious consequences, such as repossession, disconnection or prison. This usually relates to items like; mortgage repayments or rent charges, gas, electricity and water bills & state taxes like income tax or council tax. By doing this you have now identified your “Priority Spending.”

4. Non Priority Spending

Non priority spending relates to items that are not essential to your day to day living or luxury items such as treats, chocolate, trips out, or purchasing lunch or coffee out everyday, book purchases, magazine purchases and takeaways. The list is endless but be ruthless and use another colour highlighter to identify these in your financial summary.

5. Create Your Budget

The style in which you prepare you budget is not essential and individuals will use a variety of methods from pen and paper, using an excel spreadsheet or making use of online personal finance software that can track every aspect of your spending and income. However you need to make sure that your budget accurately reflects all of your monthly income and expenditure to enable you to develop an overall picture. Take some time to develop a budget for the coming month starting with your priority spending. Then take a look at your non priority spending and identify areas where you can make cutbacks, you need to be ruthless but also ensure that you factor in luxuries to keep you going through the month. You should aim to identify negative spending patterns and seek to address these either by cutting them out completely or limiting the frequency of them. For example if you buy lunch out every day, instead buy lunch every other day and take homemade food on alternate days. This may deliver sufficient savings for you to stay in control of your finances or you may need to identify a range of other money saving areas.

Microsoft have an excellent budget planner template available to download - Free Budget Template

4. Involve The Family

If you are in a relationship or have a family consider making your monthly budget planning a family event and asking other members of the family where they would like to spend the money that month or ways in which they can cut back spending. This is an excellent approach as helping the family take ownership of budget planning can really make a difference and they are more likely to adhere to it. It also teaches younger family members important budgeting skills that they will need later in life.

5. Stick To It, But Don’t Beat Yourself Up

It is important to stick to any budget that you create, but we all have bad days so do not beat yourself up if you slip up. Instead think about what you can do to get back on track and make savings at a different point in the month. Whether you adhere exactly to your budget or not each month is in some ways irrelevant if it enables you to regain control of your spending habits and personal finances in the longer term.

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