Image courtsey of jridgewayphotographey
Image courtsey of jridgewayphotographey

We often hear talk of setting a budget for things, but it can be rather confusing knowing exactly how to do this. Below is a step by step guide on how you can set a budget for your household.

Calculate income
To start with you will need to know how much money you have coming in. This is not just salary but also any benefits you get, interest or income from any other sources. Add it up and calculate how much you have coming in each month. If it varies, then do a minimum and maximum. It is probably best to work with the minimum amount.

Calculate necessities
You then need to work out the expenses that you have to pay out each month. This will include things like your mortgage or rent, utilities, debt repayments, food, transport etc. Think about all of the things that you cannot do without paying and include those on the list and add them up. You will then know how much you need to spend out each month.

Calculate difference
You then need to look at the difference between what comes in and what has to be spent. This could be quite a shock. You may find that your income does not even cover your necessities. You may find that you have a lot left over. Either way, you may have a surprise and it is important to be aware of it.

Work out if you can cut down necessities
The next step is not specifically to do with budgeting but can be helpful. It is worth looking through your necessities to see whether you can cut down any costs. You may be able to switch utility providers and save money, change your supermarket and save money or reduce your usage of some items. Some changes will not even make a difference to your quality of life, but a significant difference to the balance of your bank account.

Use money left to spend on luxuries/save/pay off debt
The difference between your income and spending on necessities is what you have left to budget with. You have to decide whether you want to spend it all on luxuries, save some or pay off debts with some. This is where the budgeting comes in. Consider what you would like to do with the money and allocate it to places. Then each month you will know exactly how much you want to save, pay off debts with and have left to spend on luxury items.