How to make a budget and cut down on debt

Make a budget is a phrase that bewilders many.    Budgets are really important for the home, work and good causes or charities, these are three main variances of the human lifestyle that we have in the UK.   The main purpose of constructing a workable budget is to cut down on debt and ultimately provide you with a debt free framework.

So here are a few tips to help you get going on this key life subject on the home front but the principles are pretty much the same whether it is for the home and family, for singletons and for small businesses.   The larger the sums involved, the more complex the business or other applications.

Make a budget for you

First off, we suggest you sit down with clean sheet of paper or a laptop computer and no noise or distractions.  This enterprise is set to help you with both your income and your costs and managing the two.

The approach we recommend centres around credits and debits of your home management which aims to help you plan on either a weekly or monthly basis depending on your income.  You may have one or many sources of income, including gifts, annuities or grants.  When you make a budget incorporate all elements as this provides financial focus.

It would be advantageous to start to make a budget at a young age so that you can refine your budgeting skills as you travel through life.

By writing down the real figures, these will help you get to grips with your life situation.

Money makes the world go round – make a budget so your world goes round without stress

This expression is somewhat cliché but it has much truth to it too.

  1. List your expenses and sources of income. List all expenses as it’s crucial to be honest with yourself when you make a budget.
  2. Develop a budget that has spending, savings, and charitable objectives.
  3. Examine your decision‐making steps that distinguish financial needs against financial wants.

Your needs are the essential items that folk must have to live on.  Wants are the things that make life more appealing and enjoyable.   You could exist without such items if you had to.   Some examples: you need food to eat, but you want to go out with your friends rather than being a homebody. You need a place to live, but you want your own high definition new TV too. You need a few clothes to wear, but you want those high-street branded goods.   Maybe a good solution is to shop at charity shops and save some valuable pounds.

Make a budget work hard for you.  For example, money you have saved can pay for extra education courses that will in turn make you more employable and at higher levels.  So with your budget you are investing in your own future and gaining precious returns on your investment.

What actually is a budget?

A budget is record of actual and estimated income and expenses over a set period of time, i.e. three months or quarterly budget, six months or half yearly or for 12 months or per annum.  You can extend this to incorporate a savings plan for up to 5 years or beyond.  Use budget activity sheets to make a budget.  Budgets are ‘live’, so refine continuously, so that you can see how to achieve best results for you.

Estimated income is money that you anticipate earning or receiving for say chore completion or special occasions.  It could be for part time work including dog walking, newspaper deliveries or mowing the lawn or car washing.

Budgets include financial goals.  Goals are short‐term, medium-term or long‐term.   What is a good idea is to define what is your time lines, for example, short-term could be three months, medium or intermediate could be six months and long-term could be say one or two years.

A good exercise to complete with a trusted partner or parent, share the amount of money you have to spend, how you make your spending choices, and the pound amount that you have saved.

Make a budget work to help you succeed

The overriding objective is saving a percentage of your spending money and rolling this over to the next month.  This figure be listed as “other money” or savings.     It is crucially about planning for the future and managing your money very well.

It is a great feeling to see your savings total grow and provide for that rainy day or unexpected budget demand whilst eliminating your stressful debt.  So make a budget today, it will empower you!