This section looks at how you can budget and have more control over your money.
A budget is simply a record or plan of how much money you have coming in (your income) and how much money you are spending or expecting to spend (your out-goings).
Why budget? Budgeting helps you make sure you don’t spend more than you can afford, it makes sure you don’t lose track of your money or simply waste it, and it helps you plan for the important and fun things in life.
Income and Expenditure
To create a budget, you need to look at your income and your outgoings.
You can create a budget using a spreadsheet on your computer or just write it all down on a piece of paper. Create a table showing your monthly income and your monthly outgoings and the difference between the two. To stay out of debt, your chart should show your income as being more than your outgoings.
Your bank or building society may also give you access to an online budgeting tool which takes information directly from your transactions. Alternatively, use the Money Advice Service’s Budget Planner or the Prince’s Trust Budget Planner.
You might get your income from:
- Part-time or full-time employment
- Pocket money from relatives or guardians
- Benefits you are entitled to
- Odd jobs for parents or neighbours that you are paid for
- A student loan or grant
- A personal loan
- Training grants
Write down a list of all your sources of income, working out how much you get per week, month or year.
The second step is to find out how much of the money you are earning is going out each week or month.
Warning #1: It is easy to overlook certain routine outgoings, such as transport costs, underestimate how much things cost, like your food bill, or simply forget about certain costs, like buying your sister a birthday present!
Top Tip #1: Try and keep receipts for all your expenses for a few months to give you a better picture of what you are actually spending, not what you think you are spending. Call it a ‘spending diary’, if you want.
The following are just some categories and examples that may help you think of what you spend:
- Tax: Income tax, council tax, national insurance
- Household bills: Rent or mortgage payments, energy, water, landline telephone, mobile phone, satellite TV, internet
- Other “essentials”: Clothes, food, make-up and hygiene products, haircuts, dental procedures
- Educational costs: College or university fees, books, stationary or equipment for your course, fieldtrips
- Travel: Car MOT or servicing expenses, petrol, train or bus fares or passes, holidays
- Leisure: Meals out, cinema, clubbing, magazines, sweets, membership fees, even cigarettes
- Family and friends: Birthday and Christmas presents
- Other: Insurance of all types, loan repayments (including student loans), credit or store card bills, pension contributions, shares, bonds
Warning & Tip #2: It can be difficult to estimate how much you spend but don’t try and fool yourself or your budget won’t work – Be realistic!
Spending More Than You Earn?
To stay out of debt, your income needs to be more than your outgoings.
If your budget chart shows you are spending more than you earn, you either need to look at ways of reducing your outgoings or increasing your income. For example, if you want to increase your income, you could consider; getting more hours at work or a second job, or selling items to raise some cash.
If you want to cut back on your outgoings, there are lots of ways you can save money, including:
- Saving energy – you can cut back on your energy bills, like electricity and gas, by only using them when you need to. Small things like turning off a light when you leave a room and turning off the tap when you are brushing your teeth can save a lot of money in the long-term
- Alter your shopping habits – try shopping at a cheaper store or buying the store’s own-brands to save money. If you find yourself buying a lot of ready meals, try cooking from scratch instead which is much cheaper and healthier
- Make the most of discounts – if you are a student, try going to bars that have student nights or shops that offer a student discount instead
- Budget for presents – set aside a certain amount for birthday or Christmas presents per person and stick to it
- Cancel subscriptions or Direct Debits that you no longer want or need
- Use price comparison websites – there’s one basic rule – whatever it is you’re looking for, there’s likely a site to help you find the cheapest price. They can help you compare dozens of prices in minutes
There are plenty of ways to save money so sit down and spend some time thinking about how you can cut back on your outgoings and be strict with yourself.
Some people find it hard to get motivated about saving, but it’s often much easier if you set a goal. That way, rather than thinking about the money you are setting aside each month, you can focus on what you will be able to do once you’ve reached your goal.
Your first step is to have some emergency savings – money to fall back on if you have an unexpected payment to make, such as a bill or if you’re suddenly out of work. Try and get three months’ worth of expenses in an easy or instant access account. Don’t worry if you can’t save this straight away, but keep it as a target to aim for.
Once you’ve set aside your emergency fund, possible savings goals to consider might include:
- Taking a holiday without having to worry about the bills when you get back
- Going to uni without having to take out too big a student loan
- Having some extra money to draw on while you’re on maternity or paternity leave
- Buying a car without taking out a loan
If you want help budgeting, you can talk to a trusted adult and check out these helpful organisations.
Citizens Advice – We give people the knowledge and confidence they need to find their way forward – whoever they are, and whatever their problem.
Money Advice Service – Supporting people’s money management.
Prince’s Trust – We believe that every young person should have the chance to embrace exciting opportunities.
Money Saving Expert – Cutting your costs. Fighting your corner.