How to start budgeting and some tips for success

By Liam On Nov 10, 2022

Do you have a budget?

I dare not ask that question, because thanks to the government we now seem to get ‘budgets’ out of the ears.

The next one, the Autumn Statement, which isn’t quite a budget but will almost certainly look like one, is due next Thursday and it looks like it’s going to be a bleak affair.

But even if you feel that you’ve been thinking enough about your finances or the finances of the country lately, I’d like to suggest you do a little more.

Getting a household budget in order and understanding what you come in and out is a cornerstone of planning for a richer future.

Ins and outs: getting a grip on your household budget is the key to financial success

With the cost of seemingly everything soaring, it’s also more important than it’s been in years.

Getting to grips with your budget can help you figure out where you’re overspending, areas to cut back, opportunities to save on your bills, and where to put money aside to enjoy. – something I would highly recommend continuing to do.

A budget also lets you understand how much you could save or invest each month to build your wealth.

And this is where I feel the need to make a confession that will hopefully encourage you to budget if you don’t already – or make you admonish me and make you feel better if you do: I am the editor of a financial website and I’m a bit hopeless at budgeting.

I’m not terrible. I do try and the books tend to balance roughly, but I wouldn’t say I have full control over where all my money is going.

You could say that while I’m not Kwasi Kwarteng, I’m not Jeremy Hunt either.

From conversations with others, I know I’m not alone, so I suspect many will recognize this kind of half-budgeting.

It’s wise to get a good idea of where our money is going, but many of us have only a vague idea of how much we’re spending and what’s happening.

The good news is that it should be easier to get this under control than it used to be, with internet and mobile banking that puts statements at your fingertips.

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Ideally, to start the budgeting process, you’ll need several months’ worth of statements — probably at least six — so you’re averaging expenses and income to remove any anomalies, spikes, or unusual things.

You can browse them online, print them out, or if you want to get geeky you can export them to an Excel spreadsheet.

Armed with this information about your income and expenses, you can then start calculating your regular essential and discretionary expenses per month.

You should also gather information about non-regular but important expenses, such as annual car or home insurance that is paid in full, and what you spend on vacations each year.

Go ahead and categorize your expenses, find out what’s on monthly bills, necessities, shopping, travel, kids, socializing etc.

You can do this in a spreadsheet, with pen and paper, use a budget app, or use the This is Money’s Household Budget Calculator linked here and shown below.

Admittedly, this might sound as fun as watching the latest Chancellor deliver another not-a-budget, but there’s a reward at the end of it.

First, having a reasonable idea of where your money is going will give you more control over your finances.

Second, if there are areas where you can save money or cut back a little, you’ll feel a little richer — and if you can save and invest every month, you’ll be much better off going forward.

And finally, I have one last tip: before you start this process, think of something that you’ll treat yourself to as a reward at the end: a takeaway, a meal out, a nice bottle of wine, or whatever you’d consider a bit of a bonus for the job.

If you want to be financially savvy, at least try to save enough money to pay it through your budget, or even don’t worry about it and just make it a reward for finally doing that budget.

> Use our household budget calculator and get budget tips

The 50/30/30 Rule: Can It Help?

The 50/30/20 rule is a budgeting idea popularized by Elizabeth Warren, the American politician, in her book “All Your Worth: The Ultimate Lifetime Money Plan.”

The idea is that people should spend up to 50 percent of their after-tax income on their “needs.”

Needs are your bills and expenses that are necessary, such as the mortgage, rent, insurance, essential transportation, food, energy and utilities.

Then, 30 percent of the after-tax income must be allocated to ‘wants’.

Needs are non-essentials, such as takeout meals, socializing, extra clothes, shopping for non-essentials, and larger things like vacations, new appliances, or a new sofa.

The last 20 percent is for future prosperity, through savings and investments.

The downside to this approach is that many may find that when they add up all their expenses, the basic needs are over 50 percent of their income and the total over 100 percent.

My tip would be to add up all your expenses anyway so that you have an idea of your expenses – then try to fit it into the model and even if the essence is more than 50 percent, try at least a little in both the wishes and the savings category.

This calculator only works on the desktop and tablet version of This is Money.

Household Budget Calculator

With our household budget calculator you can keep track of exactly where the money is going each month – the first step to economizing. Before taking advantage of this, however, it makes sense to spend some time collecting the necessary paperwork, such as pay stubs, council tax assessments, insurance policies, and credit card bills.

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