how and why to create a budget

Do you have a personal budget? This article features plenty of practical budgeting advice and some key benefits of budgeting, as well as five simple budgeting tips to help you get started.

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what are the signs you need to budget?

While a budget can benefit anyone, here are some of the key warning signs you may want to watch out for.

1. you're buying impulsively and often with guilt

2. you don't track expenditure and don't know how much you spend week on week

3. your credit score has decreased

4. your job situation has changed

5. you don't have a buffer or money set aside for emergencies

why is it important to create a budget? 

In a world where finances are stretched and the cost-of-living seems to constantly increase, budget planning is a vital skill. Budgeting allows you to ensure your finances are always in order, and offers a range of benefits: 

  • avoiding overdraft charges and late fees, including those pesky credit card fees  

  • identifying weaknesses and protecting yourself from unnecessary spending  

  • directly comparing income and monthly expenses to evaluate your spending 

  • helps you recognise the link between your financial and mental wellbeing, fostering healthier financial habits that positively impact your mind 

  • allows you to save for the future and rainy days 

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what is the best way to budget monthly? 

There is no ‘best’ way to budget – it's entirely dependent on your own circumstances and what your individual goals are.

However, there are a few different approaches to budgeting. Take a look below.

 

 

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reverse budgeting 

Reverse budgeting focuses on saving towards your financial goals first. When you create a reverse budget, you prioritise putting money into savings. Once you meet your savings goals, you use what’s leftover for expenses and spending. The best way to set a reverse budget is as follows: 

  1. prioritise your financial goals. When you get paid allocate money to your financial goals. This could be savings, paying off debt, or building an emergency fund.   

  1. cover your needs. Next, you pay all your essentials like rent or mortgage payments, bills, food and other necessities.  

  1. enjoy the rest. Any money you have left can be spent on the things you enjoy. 

Reverse budgeting works well for those with the financial freedom to prioritise financial goals over other expenses. However, if your monthly necessities already take up a large portion of your income, this might not be for you. 

 

50 20 30 budget rule 

The 50/30/20  budget rule is one of the most commonly used. It dictates that you should use 50% of your income on essentials, 30% on items you want, and 20% for savings.  

While this ratio is commonly used, you can adjust the ratios to create a budget that suits your personal goals.

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50% for essentials
this is your rent/mortgage, food shopping, utilities and other necessary expenses.
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30% for non-essentials

this is for the things you want to buy but aren’t essential. For example, new clothes or going out to eat. 

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20% for savings and debt

this is for getting yourself out of debt as soon as possible and increasing your personal savings.  

 

 

how do I create a budget planner spreadsheet? 

A great way to track and monitor your expenses is through a budget planning spreadsheet. To do this, you will need to list your income, add expense categories (rent, groceries, etc.) and calculate a surplus or deficit.

To save you time, we have a budget planner and ready-made spreadsheet, both of which are free and easy to use. 

 

 

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what if budgeting isn't enough?

If you're worried about, or struggling to afford basic essentials, then please get in touch with our support team. We’ll listen and offer advice and guidance in a safe and supportive environment. And if we aren’t able to help you ourselves, we’ll point you in the right direction of one of our partner organisations who can. Either way, we simply want you to access the best options quickly and easily, so you can carry on.

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"I contacted caba and they were so supportive. I was really impressed by how kind they were to me and how they asked me to explain my situation."

Muhammad

caba client


 

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