Create A Budget (From Scratch)… And Stick To It! – Part One

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Create a Budget (from scratch!)… and stick to it!

Part Two. Part Three.

Having a budget when it comes to controlling your finances is probably one of the best things you can do. When you know exactly what to expect coming in and going out, there are no nasty surprises and you don’t end up in your overdraft each month, or worse – using credit cards.

When you create a budget, it doesn’t mean giving up everything and having no money for anything. If your budget is too restrictive you won’t stick to it and you’ll drop the idea altogether as quickly as you implemented it.

In order for a budget to work effectively it needs to be realistic.

Today, I’m going to talk through the preparation stage of budgeting and what you need to do before you start to create a budget. So grab a notepad and paper, or a new spreadsheet if you prefer and let’s do this.

1. Record your incoming money

This is the easiest as realistically there won’t be that many transactions, particularly if you’re paid monthly. Grab your last few payslips and write down what you got paid and when. If you’re salaried and paid the same figure the same day every month great. If you’re paid weekly, get overtime, tips etc we want to get an average view of your income, so note down your pay plus tips/overtime etc for the last few weeks.

We also need to record any other reliable income e.g Child Benefit. Make a note of how much and how regularly you receive this money.

You might also like this post… Why an Emergency Fund is Important and How to Build Yours Quickly

2. Get hold of a good few months worth of bank statements

If you manage your bank account online, it’s easy to access your statements. If you still receive paper statements, grab your most recent – I would suggest the last 3 months.

Firstly we want to make a note of all the fixed payments – so Direct Debits and Standing Orders.

If you manage your account online you can probably access a payments page which shows you a list of your active DDs/SOs and the date/amount last taken – so for ease you can use this list as a reference.

If not, go through your statement highlighting all of these payments and make a note of them. You should note the date they leave your account, the amount and the reference. I also note whether the amount is fixed (e.g Gym £17.99 per month) or variable (e.g Mobile Bill (if you often have charges outside your allowance))

The reason I go through the last few months is because we often have quarterly DDs set up which we forget about (e.g. Magazine Subscription) or 4 weekly SO’s (e.g baby’s swimming lessons) and these can be easy to miss if you just look at one month in isolation.

When you are sure this list is complete, this will form the basis to create a budget.

You might also like this post… Why You Should Regularly Review Your Expenses

3. Create a Spending Diary

Be honest with yourself and track what you spend each month. For reliability you really need to do this for a whole month, but try it for at least a week. Try to keep receipts in case you forget to note it as you spend it.

Include everything – fuel spends, weekly food shops, top up shops, if you buy lunch at work, that morning coffee, the protein shake at the gym – track it all. You probably don’t even realise where most of your money goes, so how can you possibly budget for it otherwise?

Don’t forget online shops. If you get your food delivered. Those sneaky purchases from ebay and amazon. That recent ASOS haul. Document it all! If you withdraw a tenner here and there, write down where that goes too. Even the smallest spend, note it down. You’d be surprised how it all adds up.

When you have a clear view of where your money goes you’ll be able to create a budget effectively and know where you can try and save some money.

You might also like this post… My Thoughts on No Spend Days

4. Sinking Funds

If you haven’t come across this term, it basically refers to setting aside money to pay for a future bill.

It is good to have ‘sinking funds’ to cover annual expenses such as birthdays and Christmas presents, holidays and car insurance (if you paid off in a lump annually) and car maintenance.

These are things that don’t really sit within a monthly budget, but if you want to ensure you’re not caught short they’re worth thinking about.

Unless you keep excellent financial records already (in which case you probably already have a brilliant budget and don’t really need to be reading this blog post) chances are this section will be a bit of an estimate.

You need to write down a list of categories like suggested above and a rough amount that you spend in each. So say for example you have 10 people you buy birthday presents for – how much do you spend on them? £10 in a card for your friends son? £50 on Mum and Dad? Write it all down and add it up. This total will be your birthday sinking fund goal.

Do the same for the other categories applicable for you. Cars, clothes, haircuts, holidays, Christmas.

Decide whether you want to budget for these sinking funds, or whether you’ll allow for them in other areas of your budget.

It might seem overwhelming, and when you add it all up you’ll probably think ‘how the hell can I afford this?’… but if that’s how you’re spending now, you have to be honest about it in order to get the most out of your budget.

That’s it for part one – I hope this has been helpful. I’m not trying to teach you to suck eggs! I’ve had many a budget over the years but never was able to stick to it until I included all the above steps. I didn’t record my spending so wasn’t honest about how much I realistically needed in each category – it’s a recipe for failure.

We really can’t try to save money, until we know how much we’re spending.

Click here for Create a Budget Part Two


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