Whether you need to pay off your debts first, or you can crack on with saving straight away, you need an idea of how much is coming in and going out to find out how much you can afford to set aside – let’s get budgeting!
What you’ll need…
- A day where you won’t be interrupted
- Paper & pens
- A calculator
- A way of recording your budget. For me this is a trusty Excel spreadsheet. For others this might be a notebook – whatever works for you – so long as it’s clear, accessible and easy to maintain
- Any relevant paperwork (including bills & statements)
- Your partner (if you live together and pay for things jointly)
- A mug of tea and an endless supply of Bourbon biscuits*
1.) Firstly decide whether you are going to create a weekly, fortnightly or monthly budget. This will largely depend on the frequency you get paid. For me, monthly works
2.) Make a list of all the regular bills and costs which you fork out on, whether this be on a daily, weekly, monthly or quarterly basis. If you’re doing this with your partner you’ll have to decide how to do this. Do you just split joint costs and have your own budgets (like Love of my Life and I do), or do you share everything? This is likely to be largely dependent on how you work your current/joint account.
My list of outgoings is…
- Mortgage – shared with Love of my Life
- Redundancy cover – shared with Love of my Life
- Life Assurance – shared with Love of my Life
- Ground Rent – shared with Love of my Life
- Service Charge – shared with Love of my Life
- Water – shared with Love of my Life
- Electricity – shared with Love of my Life
- Gas – shared with Love of my Life
- Council Tax – shared with Love of my Life
- TV Licence – shared with Love of my Life
- Grocery Shopping – shared with Love of my Life
- Home Contents Insurance – shared with Love of my Life
- Landline & Broadband – shared with Love of my Life
- Contact Lenses
- Train pass
- Mobile Phone
- ‘Spend Kitty’ – this covers a multitude of sins, I prefer to give myself a ‘pot’ of money which I can use on such ‘luxuries’ as eyebrow threading if I can afford it, rather than setting aside money for this sort of thing each month. This will also be my ‘going out’ money, latte fund and where I splurge on wedding magazines! If you have regular treatments/ consistent monthly outgoings, or you find it difficult to stick to a budget you might want to break this section down into more detail (e.g. beauty treatments; going out fund; clothes fund) – even if you do this, still maintain a ‘spend kitty’, with the best will in the world you’ll need to allow some spontaneity!
- Savings/money to pay off debts
3.) OK, now go back & double-check your list – have you included absolutely everything? Certain you have? OK, take another slurp of tea, try not to feel too disheartened at how long the list is, and…
4.) Now you need to find out how much everything costs you each month (week if you’re doing a weekly budget). For some things this will be easy, for example my Contact Lenses cost me £11.00 each month; my train pass is £54 each month. For other outgoings this may be slightly more difficult. For example, your gas and electricity bills are likely to be more expensive in the winter months. In this instance you’ll need to find out what your ‘average monthly spend is’. To do this you’ll need to dig out the past 12 months worth of bills and make sure the solar panel on your calculator is pointing towards the window. Here comes the maths…
Let’s use gas as an example…
We are charged quarterly for gas and over the past twelve months our bills have been for:
Bill 1 = £59.22
Bill 2 = £62.22
Bill 3 = £41.19
Bill 4 = £74.84
Total = £237.47
Simply divide this total amount by 12 give you the total you’ll need to put away each month, so:
12 = £19.78
It’s generally a good idea to add a bit of contingency to this amount to make sure you’ve enough stashed away to pay for that unexpected cold snap. So, for example we put away £20 per month to cover our gas bills.
You’ll need to do this for all of your outgoings. Yes, it’s time-consuming but it’s great way to find out the true monthly cost of things.
5.) Once you’ve completed the last step, decide how you’re going to split things between yourself and your partner and then work out your personal totals, so you should end up with a list a bit like this…
Babe’s Monthly Outgoings
- Mortgage = £379.98
- Ground Rent = £18.20
- Service Charge = £34.03
- Life Assurance = £21.51
- Redundancy Insurance = £9.27
- Electricity = £13.00
- Gas = £10.40
- Water = £15.60
- Council Tax = £44.20
- Home Contents Insurance = £2.08
- Phone/Broadband = £20.80
- Groceries = £90.66 (this one is a bit of guesswork unfortunately)
- TV Licence = £6.67
- Contact Lenses = £11.00
- Mobile =£30.00
- Train Fare = £54.00
6.) You’ll notice at this stage that you haven’t given yourself any allowance for your ‘Spend Kitty’ or to save/pay off debts. I don’t have any ‘debt’ as such, so the way I work it out is as follows (if you have more debts you may want to look to put more money aside for paying these off).
Take your monthly take home and minus all of your outgoings from the list above, so…
£1452.57 – £761.40 = £691.17
take home – outgoings = leftover funds
Hopefully, like me, you’ve got a positive balance at the end of that calculation. If not, you really need to start looking at ways to cut back and live within your means (future posts should be able to provide some help with this).
I simply take this amount and divide by two, so…
£691.17/2 = £345.59
So, I put £345.59 aside as my ‘Spend Kitty’ and put the remaining £345.59 into my savings or towards paying off any debts which I may have accrued.
Well, that’s how I work it anyway and it seems to work for me. If you don’t earn the same amount each month, don’t worry. Whether you’re an Excel lover like me, or you prefer a notepad and pen approach to your budgeting, your budget will be a continually updated work in progress, so long as you’ve worked out your average outgoings it should just be a simple case of recalculating:
take home – outgoings = leftover funds
leftover funds / 2 = savings & debt money & ‘Spend Kitty’
Go on… get that kettle boiling, dig out that calculator and get budgeting!
Not a fan of my method? That’s cool. Let us know what works for you. xx
* Other biscuits are acceptable, but Bourbons are the best in my humble opinion!