Budgeting is something that we can often be told to do if we are struggling to manage our money. But it is not always that simple to do if you have no idea how it works. There are actually different ways that you can budget as well, which can make it more confusing, but it need not if you find something that will work well with you.
What is Budgeting Generally?
So budgeting means that you make sure that the money that you have will be allocated to the places that you want. For example, you might want to make sure that you cover the cost of all of your bills or you might want to have money available to repay a loan or put money into your savings account. If this is the case then you will need to come up with a plan and a budget is a way of doing it. Often people will take a look at how much money they tend to have coming in each month and the things that they have to pay a fixed amount for, such as rent, utilities, council tax, phone contracts and loan repayments. Then there will be things that will change such as food, fuel, toiletries as these are not always a fixed cost but you will usually still have to buy them. Then there are luxury items and these are the items that you can do without if you have to.
The idea tends to be that you find out how much you need to spend on necessities and make sure that you allocate some of your income towards these so that you know you have enough. Then you can calculate what is left to spend on other things. You may not have enough money to even cover essentials and you will then need to find ways to get them cheaper so that you can still afford everything that you need.
How Can I Make it Work for me?
It can depend on how your mind works and what you feel would be best for you. There are lots of different approaches that you could take and you need to find that one that suits you the best. One approach is to set up most of your payment by direct debit or standing order to be paid just after you get paid. Then you will know that the money that is left in your account after these get paid is what is left to pay for the remaining things you want and need to buy. Some people even buy everything they can on a credit card and pay this off in full at this time too which makes it even easier for them to budget, but this can be risky unless you are completely confident that you will be able to control your credit card spending to ensure you will be able to afford to repay it.
Another approach is to have different bank accounts for different payments to go out of and allocate money each month to that account to make sure enough money is put towards each thing. This can also be done with cash in envelopes if you pay things by cash. This is a very different approach but some people find that it is really helpful as it allows them to separate out all of the things they have to pay and ensure they have enough money for each one.
You will need to think about what approach will work for you, it may not be either of these but something a bit different. It is important to find something that will not confuse you and that you will be motivated to stick to.