How-to Guides » Set a budget and stick to it

Draw up a budget

2 tips on this task  |  Tweet

Make a list of your earnings and outgoings

If you've already completed task number 1 of this guide, 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 our online banking tool really comes in handy! It shows you exactly what you’ve spent your money on – and how much income you’ve gained from different sources (like gifts, salary, benefits or interest from savings).

Once you have a couple of months’ data, use it to calculate your income 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, include any regular annual expenditure on things like insurance policies. Then divide the result by 12 or 52 to figure out average your weekly or monthly expenditure.

If you don’t fancy signing in to online banking (using your existing lovemoney.com log-in), a slightly more time-consuming alternative is to use this statement of affairs calculator or this budgeting calculator from the FSA.

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.

And you can easily set yourself a budget thanks to the lovemoney.com budgeting tab, which allows you to set a monthly budget for any specific category (such as petrol and fuel). You can then track your progress through the month against the budget you set.

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.

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.