Draw up a budget
1) Make a list of your earnings and outgoings
If you've alredy completed our goal to get organised, you should have got to grips with your spending habits.
The next step is to make a list of all your outgoings and earnings. This is where all those documents we mentioned come in handy!
It's a good idea to calculate this as an annual figure rather than monthly, because monthly figures can vary considerably - for example, you might be paying out for a holiday one month, or Christmas presents the next. Once you've worked this out, you can divide the result by 12 or 52 to figure out your weekly or monthly expenditure.
A great way of working out your outgoings and earnings is by using a nifty tool such as the statement of affairs calculator or this budgeting calculator from the FSA. All you need to do is enter your figures in the boxes provided to view an instant snapshot of your household budget and personal balance sheet.
Just remember that it's really important to be honest when you're doing this - don't leave anything out. Don't forget to include items such as birthday cards, presents, holidays, and your everyday coffee - your spending diary should help you with this. It's also worth adding in an estimated cost for emergency repairs such as possibly to your car or boiler. It's always better to overestimate than underestimate, so be generous. And don't forget about any annual insurance policies, such as home insurance.
Similarly, make sure you don't forget anything when you're calculating your earnings too - this can include interest on your savings, benefits, and so on.
2) Cut back!
Once you've done all this, it's time to ask yourself the big question. Are you spending more than you earn?
If, much to your horror and disbelief, the answer is yes, you'll need to tackle this head on.
To do this, it's worth examining your outgoings to see whether you can make any cutbacks. Perhaps you could reduce your socialising, food bills, or clothes shopping. Maybe you could start bringing your lunch to work, or give up that cappuccino from Starbucks every morning.
It's important to be realistic when you're doing this - don't set yourself an impossible task that you know you'll never stick to.
3) Make use of your leftover money
If you're lucky enough to have some spare cash at the end of each month, don't leave it sitting in your current account, tempting you to spend it. Instead, move it into a savings account. It's worth setting up a standing order for this so that the money moves out of your current account and into your savings account before temptation strikes.
Alternatively, use it to pay off your debts. Find out how to snowball them into oblivion by adopting this goal: Destroy your debt.
A final note
Finally, don't forget you should review your budget on a regular basis to make room for any changes in your outgoings/earnings - for example, if you receive a pay rise, or your landlord increases your rent. Reviewing your budget will also help you to assess whether you're on track with your finances.
Happy budgeting!
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