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Effective Budgeting

A budget is a spending plan that takes into account your monthly income and expenditure, so that you have a clear idea of where your cash goes. If you have a financial goal - such as ridding yourself of debt, saving up for a deposit on your first home or putting money aside for your retirement - a budget plan will help you work towards this. Provided you stick to it, a budget will help you to keep on top of your outgoings, making sure you don't spend more than you earn each month and helping you to live within your means.

1. Get organised and take your time

It makes sense to gather together all the paperwork you'll need before getting started - so get hold of a few months' worth of bank statements, your recent credit card statements, copies of household bills, details of savings and pension contributions - and any other information you have on other income from any source.

2. Add up your income

Next, you need to calculate your income. Make a list of your regular earnings from employment (after tax and National Insurance has been deducted), as well as any income you have from savings, investments, self-employment or the rental of any properties you own.

Be especially careful if your income is irregular. Varying amounts of incomer make budgeting more difficult - but also more important. It may be that you need to budget for your guaranteed income and extra is treated differently (savings, holidays, Christmas fund etc). Some are paid weekly or 2 or 4-weekly, which again creates an extra challenge when budgeting as many of our outgoings are paid monthly but there are more than 4 weeks in a month and our payment dates may change through the month.

3. Work out your expenses

Now you need to work out how much you're spending each month. Look at your bank statements, household bills and credit card bills to ensure you have a realistic idea of where your cash is going - and avoid guessing wherever possible, as the more accurate your figures are, the more useful you'll find the budget you draw up.

Remember to take into account occasional spending, not just monthly expenditures. Think about the cost of Christmas, birthdays, insurance policies, your MOT and your annual holiday. Add costs like these into your list of expenses - ideally in a separate 'yearly/occasional outgoings' column. It may also be helpful to distinguish between priority and non-priority expenses.

4. Act on the information

Depending on the results action may need to be taken. Expenses may need to be reined in. A more disciplined recording process adopted. And certainly the budget will need to be reviewed periodically and especially during a time of changing circumstances.

The above is provided as information only. Iva.co.uk does not provide debt advice. You must always seek professional advice before taking any action to resolve your debts.