Budgeting 101: Creating a Personal Budget
Creating a personal budget helps you manage your money effectively, reduce financial stress, and plan for the future. Budgeting can also provide a clear structure, helping you feel more in control of your finances. This comprehensive guide will walk you through the process of creating and maintaining a personal budget, with practical examples, tools, and UK-specific resources.
Here's a step-by-step guide to help you with creating a personal budget.
Understand Why Budgeting Is Important
A budget helps you:
Track income and expenses to avoid overspending.
Save for future goals or emergencies.
Reduce anxiety by providing a clear picture of your finances.
Practical Example:
Without a budget: You may run out of money before payday.
With a budget: You know exactly how much you can spend on bills, food, and other essentials.
Gather Financial Information
Start by collecting all the information about your income and expenses.
Practical Steps to Try:
List Your Income Sources:
Salary, benefits (e.g., Universal Credit, PIP), freelance work, or other sources.
Example: "Monthly income: £1,500 (salary) + £300 (PIP) = £1,800."
Track Your Expenses:
Review bank statements or receipts for the last three months to identify regular spending.
Example: Rent, utilities, food, transport, subscriptions, medical expenses.
Tools to Help:
Bank Apps: Most UK banks (e.g., Barclays, Lloyds) offer apps that categorise spending.
Money Dashboard: A free app to track and analyse spending.
Categorise Your Expenses
Organise your spending into categories to see where your money is going.
Expense Categories:
Essential Expenses: Must-pay costs like rent, utilities, food, and transportation.
Variable Expenses: Flexible costs like entertainment, subscriptions, and dining out.
Savings and Goals: Money set aside for savings, emergencies, or specific goals.
Practical Example:
Rent: £700
Food: £250
Utilities: £150
Transport: £100
Entertainment: £50
Savings: £100
Create a Budget Template
Design a simple budget to allocate your income across expenses, or feel free to use the template in the example below to help you.
Practical Steps to Try:
Start with Income: Write down your total monthly income.
Deduct Essential Expenses: Subtract fixed costs like rent and utilities.
Allocate for Savings: Aim to save at least 10% of your income if possible.
Set Limits for Variable Expenses: Decide how much to spend on non-essentials.
Budget Example:
Category
Amount (£)
Notes
Income
1,800
Rent
700
Essential expense
Food
250
Groceries only
Utilities
150
Gas, electricity, water
Transport
100
Bus pass
Entertainment
50
Cinema, subscriptions
Savings
100
Emergency fund
Total Expenses
1,350
Track Your Spending
Regularly monitor your spending to ensure you stay within your budget.
Practical Steps to Try:
Record Daily Expenses: Use a notebook, spreadsheet, or app to log what you spend.
Example: "Monday: Coffee £3, Bus £2.50."
Review Weekly: Check if you’re staying on track.
Example: "I spent £20 on transport this week, so I’m within my £100 monthly limit."
Tools to Help:
YNAB (You Need a Budget): A budgeting app with a hands-on approach.
Emma: A UK-based app to track spending and manage subscriptions.
Adjust Your Budget as Needed
Budgets aren’t static—you can adjust them as circumstances change.
Practical Steps to Try:
Reallocate Funds: Shift money between categories if priorities change.
Example: Use part of your entertainment budget for unexpected medical costs.
Update for Irregular Income: Adjust your budget in months when income is higher or lower.
Plan for One-Off Expenses: Add categories for annual costs like insurance or holidays.
Build an Emergency Fund
An emergency fund helps you cover unexpected expenses without disrupting your budget.
Practical Steps to Try:
Start Small: Aim for £500 initially, then build up to three months of essential expenses.
Set Automatic Savings: Transfer a small amount to savings each payday.
Example: Save £20 a week to reach £1,040 in a year.
Tools to Help:
Plum: Automatically saves small amounts based on your spending habits.
Chip: Helps you save money without noticing.
Manage Debt
If you have debt, include repayments in your budget.
Practical Steps to Try:
List All Debts: Include credit cards, loans, or overdrafts.
Prioritise Repayments: Pay off high-interest debts first.
Seek Advice: Contact a debt advisor for help creating a repayment plan.
UK Resources:
StepChange Debt Charity: Free debt advice and solutions. Visit www.stepchange.org.
National Debtline: Free advice for managing debt. Visit www.nationaldebtline.org.
Save for Goals
Budgeting isn’t just about cutting back—it’s also about saving for things that matter to you.
Practical Steps to Try:
Set Specific Goals: Decide what you’re saving for (e.g., a holiday, a new phone).
Break It Down: Calculate how much to save monthly to reach your goal.
Example: Save £50/month for a £600 holiday in a year.
Tools to Help:
Moneybox: Save and invest spare change for long-term goals.
Squirrel: Helps you budget and save before spending.
Seek Support if You Struggle with Budgeting
If budgeting feels overwhelming, reach out for support.
People Who Can Help:
Citizens Advice: Offers free financial guidance. Visit www.citizensadvice.org.uk.
MoneyHelper: UK government-backed advice on budgeting and managing money. Visit www.moneyhelper.org.uk.
Support Workers: They can help you create and stick to a budget.
UK-Based Autism-Specific Support:
National Autistic Society (NAS): Offers advice on managing finances. Visit www.autism.org.uk.
Practice Self-Compassion
Budgeting is a skill that takes time to develop. Be kind to yourself if you make mistakes.
Tips for Self-Compassion:
Focus on progress, not perfection.
Celebrate small wins, like staying within your grocery budget.
Adjust your budget without guilt if something unexpected happens.
Final Thoughts
By following this guide, using the suggested tools, and seeking support when needed, you can create and maintain a personal budget that works for your needs. Budgeting can provide structure, reduce financial stress, and help you achieve your financial goals.