Are you getting fed up with your hard-earned money barely stretching a month, resulting in you living paycheck to paycheck? It might be time to start a budget to help you take the first steps on your financial wellness journey.
First thing first, you have to know your income. It may be that you are simply on a yearly salary and take home the same wage each month, or it may be that you work hourly, receive a weekly or bi-weekly paycheck, or your income is very sporadic. Whatever it is that is deposited into your bank each month, write it down.
Where do you start?
If you aren’t sure how to calculate your income. Gather the last 3-6 months of your paychecks, add up all of your income and divide it by the number of months you are comparing. Use this figure to start your budget!
Take a look through your expenses
Expenses. This is the eye-opening part of your budgeting journey and the place you can potentially save the most money!
This may seem like a bit of a lengthy and overwhelming process, however, it is so important to understand your current spending habits in order to get control of your hard-earned money.
First, write down a list of all of your bills. This is rent or mortgage, gas, electric, water, phone bill, broadband, subscriptions etc. You can gather this information under the Spending Analysis tab in the Moneyhub app! Moneyhub identifies your ingoings and outgoings and categorises them for you.
Second, you need to gather your debt payments. This can include credit cards, payday loans and holiday or car payments. If you’re keen to sort out your long-term budget, it is worth gathering your debt payment bill. This will either be a figure for the amount you owe on a credit card or how many more payments you have left on your car.
Finally is to gather all of your variable spending figures. We recommend you go back through 3-6 months of your bank statements and track the individual categories each month previous so you can understand how much on average, you are spending on this category. One month it may be £100, another it may be £800, so it’s incredibly important to gather a history of your spending.
The variable category includes groceries, fuel, eating out, entertainment, clothing, car repairs etc. Anything that you spend that is a different figure month to month, sits under this category.
Again, you can see all these figures under the Spending Analysis tab in the Moneyhub app!
After sorting your bills, debts & variable expenses, you should have covered all outgoing bills.
Little to nothing left?
With all of these figures you have gathered, you need to do a bit of basic maths. We’d suggest adding together the full amount of money you have spent on variables across the months you are comparing and dividing it by the number of months you have chosen.
£250+£830+£500 = £1580
£1580 / 3 = £526.66
Now, you need to work out how much money you will have left after your bills, debt payments and current spending habits have been deducted.
Total income - total bills - total debt payments - variable average = remaining amount
£1800 - £1050 - £224 - 526 = £0
Here at Moneyhub, we have a Forecast feature in which, once we have gathered enough of your spending data and habits, we generate a forecast of the amount you will have left over at the end of the month! We offer 6 months of free use of the app. At the end of the 6 months, there is no automatic enrolment into paying the monthly fee. The trial is coded so there is no chance of anyone who signs up, being caught out by a subscription fee once the 6 months are up.
Decrease your outgoings
Now, going through your variable expenses may have been a wake-up call for your spending habits. This is the first step in trying to reduce your outgoings by allocating pots of money for each category, to allow you to pay off more debt and save money.
Are you spending £250 a month on groceries but also spending £150 on takeaways and eating out? It's time to look at how you can cut that down. Spending £120 on clothing each month? Maybe put aside a certain amount of money each month, for instance, £80, that you can spend on clothing, as for a lot of people trying to cut out buying clothes altogether will result in a spending splurge.
The next step, take a look at your bills. Head to a comparison site and see if you can get your gas or electric cheaper, is there a cheaper internet package?
Go through each bill and see what there is on offer.
Subscriptions are regularly something that catches people out. They sign up and forget about it! How many times a month are you using your parcel delivery service?
Do you use your online streaming service enough to warrant the cost?
Get started
Once you have swapped a few of your bills for new providers, set aside pots of money for each spending category to ensure you are cutting down, and cancelling one or two subscriptions you forgot you had, it’s time for you to start your budget.
We hope you have at this point decided to download Moneyhub and claim your free 6-month premium access, or it might be that you would like to start off on paper or a spreadsheet before getting the app.
You need your income at the top, followed by a list o your bills and their amounts, a list of your debts and their amounts, followed by variable spending categories and how much you are allocating to each category. Any remaining amount is up to you whether you save it, or split it between paying off debts and saving.
We hope our budget crash-course post has allowed you to take the first step to financial freedom, and hope to see you soon on Moneyhub!