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How to budget?

Written byKoyo Loans
Last Updated26th October 2022
Contents
  • In 30 seconds…
  • Introduction
  • How to budget?
  • Why is budgeting important?
  • How to make a budget spreadsheet?
  • How to manage a budget?
  • What is a personal budget?
  • How to budget and save?
  • How to live on a budget?
  • How to budget family income?
  • Conclusion

In 30 seconds…

Budgeting is an integral first step toward improving your personal finances. It enables you to account for all of your income and expenditure and allows you to take back control of your personal finances. You can make a simple budget spreadsheet yourself or download a tool from an online resource to help you. Central to managing your budget is discipline, as you need to regularly track and update your personal finances and stick to the goals listed within. When done correctly, budgeting helps you to save, live within your means, and financially support your family.

Introduction

Putting together a budget is an integral step that will help you manage your personal finances. Without a budget, you’re essentially guessing how much money you have available to spend every month, which is far from ideal. The good news about budgeting is that it’s simple, easy to master, and puts you in complete control of your finances. With that in mind, we explain what you need to know about budgeting below, and provide you with some tips that will help you take control of your personal finances.

 

How to budget?

Budgeting is a crucial step toward better financial management. There are lots of ways to put together a budget, but the key is to develop a clear understanding of your monthly income and outgoings before getting started. 

Budgeting encourages you to spend within your means, and the best way to get started is to calculate your earnings after tax. This provides you with an accurate representation of how much money you have to spend each month, which is a vital starting point for your budget. Once you know what you can afford to spend, you can begin allocating the required funds to each segment of your budget. 

Before making any purchases throughout the month, it’s really important to consult your budget to check that you can afford whatever it is you’re planning to buy. This is where financial discipline comes in, which is a fundamental part of the budgeting process. You should then come up with an effective system for managing and monitoring your budget, which helps you track your income and expenditure as you go. 

Why is budgeting important?

Budgeting is important because it encourages you to spend within your means. It also allows you to account for your various financial responsibilities and identify opportunities for you to save money and reduce your expenditure. 

When done correctly, budgeting allows you to take back control of your personal finances as you can manage your regular outgoings, set up a debt repayment schedule, and save money for the future. It also provides you with peace of mind as you can see an overview of your expenditure and look for ways of cutting back if there are any changes to your income. 

Without a budget, it’s easy to get carried away with your monthly expenditure, which can lead to long-term financial mismanagement. After all, if you’re living paycheck to paycheck without planning for the future, it’s easy to get careless with your spending. Even a simple budget will help you improve your wealth management and will stand you in good stead long into the future. 

How to make a budget spreadsheet?

You can make a budget spreadsheet on Excel or Google Sheets in a matter of minutes. Every person has slightly different priorities as far as budgeting is concerned, but there are a number of things that you need to include in a budget spreadsheet as a bare minimum. 

Fundamentally, you need to include details of your income and expenditure. It’s helpful to split your expenditure into needs and wants to give you a clear idea of what expenses are essential. Needs include things like rent/mortgage, utility bills, groceries, fuel, etc., while wants are non-essential items like gym memberships, meals out, and holidays. 

You need to ensure that your income covers the various expenses that you add to your spreadsheet. If you find yourself coming up short, you will need to either remove some of your expenses or look for ways to earn more money. While it might be disconcerting at first, creating a budget will allow you to take control of your financial management and will help you save money in the long run. 

How to manage a budget?

Managing a budget is all about discipline. As soon as you’ve created a budget, you need to regularly input your expenditure and hold yourself to account. If you merely create a budget and never return to it, it’s unlikely to have a positive impact on your general spending. 

Whether you do it daily, weekly, or monthly, set aside some time to add details of your expenditure into your budget. This is crucial as it allows you to track your progress and helps you identify ways in which you can improve your financial management. For some people, a simple spreadsheet is enough to manage a budget, but there are some other options. 

For instance, you can download an app like You Need a Budget, which enables you to gain total control of your money in a simple and effortless way. YNAB’s budgeting software is extremely simple to use and will help you stay on top of your expenses. A subscription could help you if you’re concerned about your ability to manage your own budget. 

What is a personal budget?

A personal budget can refer to the act of an individual making arrangements to improve their financial management by tracking their income and expenditure. But it is also a term used in healthcare to express the sum of money that is required to pay for an individual’s social care.

From a personal finance perspective, a personal budget encompasses various sources of income and expenditure that contribute to your lifestyle. When compiling a budget, you need to consider how much money you have available after taxes, which then informs the amount you’re able to spend on essential and non-essential items. 

Creating a personal budget is an excellent way of improving your financial management, as it enables you to work out what you can and can’t afford to spend your money on each month. Whether you use a simple spreadsheet or a purpose-built app, a personal budget will help you take back control of your finances and plan for the future.

How to budget and save?

When you create a budget, it’s important to consider your savings goals. The best way to do this is to work out what percentage of your monthly income you would like to save before taking the necessary steps to make it happen. 

One of the easiest and most popular ways to budget and save is to employ the 50/30/20 rule. It splits your after-tax income into three succinct categories and encourages you to spend 50% of your earnings on needs, 30% on wants, and 20% on savings or paying off your debts. If you have debts outstanding, it’s much better to pay them off first before working on your savings pot. 

This is because debt comes with interest attached, and the longer you leave your debts, the more interest they are likely to accumulate. So, whether you have a personal loan or credit card debts outstanding, it’s best to pay them off as quickly as you can, as this will enable you to start putting money away in a savings account each month. 

How to live on a budget?

To live on a budget, you need to take stock of your personal finances and differentiate between your needs and wants. For most people, cutting back on non-essential items (wants) is an important first step, as it ensures that you’re not spending money on items that you don’t actually need. 

 

Wants are things like gym memberships, holidays, dining out, and designer clothing. Depending on your income, you might be able to set some money aside for these types of expenses each month, but if you’re living on a tight budget, they’re the first costs that you need to reign in. You can also look at ways of saving money on your essential items, bills, and debts. 

For instance, switching to a different utility company, consolidating your debts, and ditching your car in favour of public transport can all save you money. You might even be able to apply for council tax relief or access certain benefits to help you manage your essential bills, but this largely depends on your current income.

How to budget family income?

The practice of creating a family budget is very similar to putting together a personal budget. However, the key distinction is that you need to think about the income and expenditure of your entire family, as opposed to just yourself. 

You should begin by combining your income with your partner’s. This will illustrate how much money you have available each month to spend. Next, separate your expenditure into needs and wants and think about how much you want to save each month. Again, using the 50/30/20 budgeting rule is a great way to get started. 

You will also need to think about the practicality of managing your family’s income. Many couples open joint accounts to make it easier to pay the mortgage and other bills, so it’s something that you should think about when you’re creating a family budget. You should also agree with your partner on how you’re planning to monitor your budget so you’re both on the same page when it comes to meeting your financial goals. 

Conclusion

The key takeaway from this article is that budgeting is essential for your personal finances. Without a budget, it’s incredibly difficult to plan for your present and future. As explained, putting together a budget doesn’t have to be difficult, but it can transform your life and provide you with peace of mind as you manage your money each month. 

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Key Takeaways

Without a budget, it’s extremely difficult to stay on top of your personal finances. The good news is that creating a budget is easy, and a simple spreadsheet is enough to get you started. Begin by tracking your income and expenses and set yourself some realistic financial goals that help you live within your means. You then need to be disciplined and willing to hold yourself accountable to these goals. 

Creating a budget will help you save and invest money and will also enable you to keep on top of any debts and monthly repayments that you are obliged to make. The 50/30/20 rule is a great starting point for anyone new to budgeting, as it helps you allocate your income accordingly. 

While living on a budget can be tough at first, you will soon find it liberating. You have the chance to reign in superfluous spending and spend your money on the things that really matter to you. Whether you use it for your personal or family finances, a budget will help you take back control of your money and will help you make smarter financial decisions in the future.

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