Making a budget plan
Knowing how much money you have coming in and going out allows you to:
- avoid a bad debt situation,
- have a sense of what you can and cannot afford.
There are three steps in drawing up a budget plan:
- work out what you have coming in (total income),
- work out what you have going out (outgoings or expenditure),
- decide on the best way to deal with the difference between the two.
What's my present money situation?
Draw up a chart of all your money coming in and your payments out.
Charts may be prepared for different time-scales: weekly, monthly or yearly (annually). Choose one that suits you best. If you are working or on a training scheme, you may find a monthly or weekly one works best, depending on how frequently you are paid.
If you are a student, an annual one may be easiest, to take account of your grant and student loan.
How much is my income?
First, write down all your money coming in. This will include:
- wages, or training grant
- student grant and loan (if you are a student)
- any state or other benefits which you receive
- money which you get from your parents or other people.
How much am I spending? ('outgoings' or 'expenditure')
Second, write down all your payments out. These should include everything that you spend.
List all the things that you have to spend money on—your "non-discretionary expenditure"—such as your travel to and from work or college, your food, any rent or college fees, mobile phone, or car costs. Remember to include ALL costs; for example, 'a car' will include petrol, insurance, vehicle tax, MOT and servicing. If you have taken out a loan, or are repaying credit, remember to include the amount of your repayments as well as the interest you are paying.
Then list what you estimate you spend on non-essentials—your "discretionary expenditure"—such as your entertainment and other socialising, eating out, holidays, clothing, sporting activities etc. (see below for an example check list).
Be honest and realistic! If you under-estimate what you are spending, your financial position will look rosier than it is.
The Balance
The balance is the number you end up with when you subtract your expenditure from your income.
If this number is positive (well done!) consider putting this extra money into a savings account.
If it is a negative figure you are running into debt by spending more than you earn. You will have to work out how you will address this immediately! See debt control.
Drawing up your budgeting chart
Below is the sort of budgeting chart that you could draw up. Adjust it to suit your circumstances. You can also download this budgeting chart (pdf).
| Income | |
|---|---|
| Income from work | |
| Benefit payments | |
| Student grant | |
| Student Loan | |
| Other | |
| Total weekly/monthly/annual income | |
| Expenditure | |||
|---|---|---|---|
| Public transport | Tobacco | ||
| Food | Newspapers and magazines | ||
| Rent or mortgage | Videos/books | ||
| College fees | Entertainment (pub, sports, cinema, clubs) |
||
| Gas | Car tax | ||
| Water | Car insurance | ||
| Electricity | Car servicing (MOT) | ||
| Council Tax | Holidays | ||
| TV licence | Presents (Christmas, birthdays) |
||
| TV rental | Trips out | ||
| Insurance of property | Meals out | ||
| Insurance of contents | Standing orders and direct debits | ||
| Launderette | Repayment of loans | ||
| Telephone rental | Hire Purchase payments | ||
| Telephone call charges | Other | ||
| Clothes | |||
| Total weekly/monthly/annual expenditure | |||
| Balance (the difference between total income and total expenditure) |
Next, make a note of all the money you have borrowed and will have to re-pay. This may include:
| Outstanding debts | |
| Credit cards | |
| Bank loans | |
| Student loans | |
| Other loans or unpaid bills |
You should now be able to judge whether you are currently living within your means, or whether you are building up debts. And you will have a picture of how much you already owe to other people and organisations.
You could also try the Financial Services Authority's budget calculator.
This page was updated on 15 July, 2008
