Advice centre:
Creating a budget

A budget is an invaluable tool to help you take control of your household finances, and improve your financial situation going forward.

So what is a budget? It’s simply a list of all the money you receive and everything you spend. Usually income is received and bills are paid on a monthly basis, so it’s usually best to prepare a monthly budget. A budget allows you to see areas where you may be able to cut back, and ensure you don’t overspend in the month.

Step 1
Firstly you need to add up all the income that comes into the household. This includes wages, benefits, pensions – everything. Remember – if any income is paid weekly you need to multiply the amount by 52 and divide the answer by twelve – this gives you the monthly amount.

Step 2
Now you need to make a list of everything you spend in the month. This should include all the bills and direct debits. It’s also helpful to look at recent bank statements to see how much you spend on average on food, clothing etc. Add an average for these items into your budget. It’s also important to make an allowance for yearly spending; Christmas, holidays etc. Estimate how much you will spend and divide by 12.

Step 3
Now it’s time to see how you perform on a typical month. Deduct your spending from your income. If you’re spending more than you receive then it’s time to look at ways to cut back and live within your means. If you still have money left over then that’s great – but it’s still worth using the budget to see where you can still cut back.