Image courtesy of Bradley Gordon

Many people will advise us to budget. They will say that we will be able to manage our money better if we have a budget and stick to it, but often there is no explanation of what a budget is and how you stick to it.

What you need to do in order to budget is to find out what money you have coming in each month or week and what you have to pay out. This means that you will need to organise all of your paperwork so that you can find out all of this information. There will be fixed amounts, such as rent and variable ones such as food and you will need to get an idea of how much you are spending on them all. Then you can put together a budget.

Firstly take away all of the fixed costs that you have from your income and see what is left. This is the amount that you will have left to spend on variable costs, such as food and other items. You then need to allocate what is left, so decide how much you will spend on food, how much on going out drinking, how much on gifts, how much on clothing etc. This will allow you to make sure that you do not spend more money than you have. It is wise to take the opportunity to allocate some to saving or paying extra off debts if you can. You should also see whether there are any ways that you can reduce any of your costs, whether fixed or variable, that will enable you to be able to free up more money. This will allow you to be able to buy more things or have more to pay off debts or save.

Setting a budget is one thing, but sticking to it can be difficult. It is difficult when you see items that are more expensive than your budget that you want to buy and you are not sure what to do. It is worth remembering that you can carry your budget over, so if there is not enough this month to buy the item that you want, put aside your allocation for that and then next month add that months budgeted amount to it and keep doing so until you have saved up enough to buy it. So if a dress you want is three times your allocated clothing budget, then you will need to go without new clothing for three months and save the money up until you have enough to buy the item you want. It is tempting to think that this will work in reverse, that you buy the dress you want straight away and then do not buy clothing for three months to make up for it. Unfortunately, this will not work as there is not the money available to do this as it is all allocated to other things. Therefore to buy the item immediately you would need to borrow money. You may be able to take it from your savings or a different budget area that you have allocated money to and decided to go without and effectively borrow form yourself or you may need to borrow it elsewhere. Either way you will not be sticking to the budget and you could end up paying more than you need for the item because of interest charges.