How to draw up a budget

How to draw up a budget

A household budget plan can help you make the most of your money. Not only can it help you decide how to budget but it can also show you where to make savings.

Written by Abigail Montrose on 07 May 2013


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What is a budget?

A budget is a record of how much money you have coming in (your income) and how much money you have going out (your spending). It helps you to see clearly what your financial commitments are and keep track of your spending. This makes it easier to manage your money and plan for the future.

You can create your own budget in MoneyVista. For more on why budgeting is a good idea see our guide.

Working out your income

Start by working out your income. This is money you regularly receive such as a salary from your employer, a pension or income from a business if you are self-employed. You should also include any state benefits, maintenance payments and any income from savings, investments, and property. Work out your total income after tax, to see the actual amount of money you have to spend. For help with this use our tax calculator.

You may also receive other income such as commission, bonuses, over-time, gratuities or gifts from family or friends. If this income is unpredictable or irregular, you need to think carefully before including it in your budget, as you cannot rely on it. It may be better to earmark it for other purposes, such as extra savings or holiday money, and leave it out of your household budget.

For help working out your take-home pay after income tax, National Insurance, student loan repayments and pension contributions, use our salary calculator.

Working out your spending

Make a list of everything you spend. This is likely to be a long list so it helps to group areas of spending together so you don't miss anything out. For example, you could group together all spending on housekeeping, financial products and motoring costs. In the Budget section of MoneyVista there is a budget planner that will help you with this.

As well as regular spending, you need to include occasional spending in your budget such as for Christmas, birthdays, holidays, visits to the hairdresser, magazine subscriptions etc. Work out how much you spend on these each year and then calculate how much you need to set aside for these in your weekly/monthly budget. 

Budgeting tips

The more information you have, the more accurate your budget will be.

For details of your income and spending check payslips, bank statements, household bills (gas, electricity, water, Council Tax etc), supermarket bills, credit and store card bills, insurance documents (car, house, pet etc), savings, investments and pension statements and so on.

A good way of keeping track of your everyday spending is to use a spending diary where you write down everything you spend for say two weeks or a month. This is useful for several reasons.

  • It helps build up a clear picture of where your money goes - you might be surprised how much you spend on work lunches, newspapers, prescriptions etc.
  • It's a good way to remember easy-to-forget expenses such as library fines, contributions to school events, a quick coffee with friends.
  • It makes you think before you spend, putting you in control of your money. 

Weekly or monthly budget?

Most people manage their money on a weekly or monthly basis. It doesn't matter which you do so long as all the figures in your budget are for the same period. So with a monthly budget, all the income and spending must be monthly amounts even if bills are only paid once a quarter or annually. By putting aside money each month for these expenses, you not only spread the cost but you can also see how much they cost each month. 

Converting to monthly amounts

Converting to weekly amounts

Annual amounts divide by 12

Annual amounts divide by 52

Quarterly amounts divide by 3

Quarterly amounts divide by 13

Weekly amounts multiply by 4.33

Monthly amounts divide by 4.33

 

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