Budgeting

Budgeting helps you keep a track of your finances and control your income and expenditure. It is not as difficult as you think to budget. There are lots of apps you can download that will help you. This article will take you through the importance of budgeting, how to budget and some other tips for managing your spending.

Why is it important to budget?

• Helps you spend your money sensibly.
• Make sure you have enough money to spend on essentials such as food or rent. 
• You have money to save for the future. 
• Helps you work out if you have enough money to buy a particular item or if you have some money that can be saved.

Committed Spending v Discretionary Spending 

Your outgoings/expenditure (money you spend) can be described as Committed or Discretionary. 

Committed spending is expenditure you absolutely need to make such as a mortgage, food, electricity bills etc. This usually takes priority over discretionary spending and can increase or decrease depending on your personal circumstances. Discretionary spending is expenditure that you choose to make however you do not need to, for example, gym membership, media subscriptions (Netflix, Amazon Prime), meals out, holidays etc. Ideally, you should ensure your committed spending is covered before you spend money on discretionary purchases. If your level of income decreases you may need to cut back on some discretionary spending. On the other hand, if your income increases you may choose to increase your discretionary spending.

How to budget

You can either create a weekly or monthly budget.

The first thing you should do is make a list of your income. This could be wages from employment, loans (including student loans), allowance from your parents/guardians or any other income you receive.

Next, you need to make a list of everything you spend money on. Some of this may be committed spending i.e rent, insurance, food bills. The rest will be discretionary spending such as gym membership or media subscriptions. There may be some months when you need to make additional purchases i.e a birthday present for friends or family.

Top Budgeting Tips

• Stick to your budget. 
• Plan ahead for the future. Think about any possible future spending and consider whether you may need to save some money. 
• Take into account future costs such as around Christmas time, summer holidays or perhaps people’s birthdays if you want to buy a present. Include these events in your future budget so you can save money accordingly. 
• Keep track of your spending by reading your bank statements or using online banking.

Example Budget

Sarah receives £120 each month from her part time employment. She also receives £300 per month from her student loan. Her monthly expenditure includes travelling to university on the train, her car insurance and her mobile phone contract. She also contributes to her household (dig money).

Let’s look at Sarah’s monthly budget.