COMMENT
How To Budget

Over the weekend I was reading a newspaper article about a woman in her late 20s who had suddenly realised she'd been living well beyond her means but didn't have a clue how to start budgeting.

Understandably, she asked " Why did they not teach me about this at school?" Why, indeed!

The idea of creating a budget may not exactly float your boat but it's the clever thing to do, whether you need to rein in your spending or not. All you're doing is actively managing your finances and that can only be a good thing even if the process may seem a little dull.

Start by finding out where your money's going every month. While it's easy enough to check your bank statements for direct debits and standing orders to see what your main household bills are costing you, if you want to do it properly then keep a spending diary for a month so you can track where your cash is going and what you're buying every time you whip out your debit or credit card at the till.

Although it's tempting not to sweat the small stuff, it's worth going into detail with your spending diary. People are often blissfully unaware at how much gets frittered away on little things such as newspapers, magazines, sandwiches, drinks etc. If you decide you want to continue buying them, and you can afford it, then incorporate the expenditure in your budget so you know the costs are covered.

While you're keeping your spending diary, take a look at the 'big stuff'. Certain outgoings such as council tax can't really be varied but you may be able to get better deals for your mortgage, utility bills, insurance and credit card bills. The less you're spending on those, the more money you're freeing up for yourself.

The end result will be an at-a-glance guide to where all your money's going each month. If you're spending more than you're bringing in, you'll be able to see instantly where to make cutbacks. If you have money left over, then you need to think about what you're going to do with it. For example, pay off any credit cards, build up some easy access savings as a cushion for those unexpected bills and then consider investing for the long term. (There's a wealth of information right here that you can start with).

Creating a budget ultimately doesn't really take that much time and it only needs to be reviewed occasionally to ensure you're staying on track. Use occasions such as when you get a pay rise (or cut!) and when interest rates change so you can adjust your budget accordingly.

Check out our Get Out of Debt, Mortgage, Credit Card, Savings, and Insurance centres to find out more.