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Budgeting just means controlling your spending to keep it below your income and make sure you have enough money for everything you need and (ideally) a bit left over for the things you want as well.
There are lots of ways of planning a budget and different methods suit different types of people.
Some key points
Budget plans need to be accurate. They need to be based on real numbers, not guesses, as much as possible. Use bank statements, bills, receipts, wage slips etc to get the numbers right. Include all types of income and all the things you spend on.
A budget plan needs to be either a weekly or a monthly plan, not a mish-mash of both. That means you’re going to need to multiply up weekly payments or divide monthly ones depending on which you do. The number you need to multiply or divide by is 4.333 (4⅓). There are 4 and ⅓ weeks in a month not 4. Get this wrong and the chances of you running out of money go way up.
Don’t forget the things you pay for less often: Service charges, quarterly bills, insurance premiums, birthdays, festivals etc. Also repairs and replacements for expensive items, e.g. electrical items, school uniforms, winter coats etc.
Our five suggested ways of budgeting
Pure cash
Take all your bills and spending money for the week or month out of your account. Label a set of containers with the expenses you have (fuel, water, food, clothes etc). Martha suggests envelopes but Alex likes the idea of using socks. If you go with Alex’s suggestion make sure you colour code the socks for the different expenses, so you don’t get confused.
Share your money out between the containers, start with the most important (housing costs, fuel, TV licence) and work down. Only spend from the correct containers, try not to swap money between them. Do not take money out of the containers for covering bills to pay for fun stuff. Have one sock for emergencies. Wanting a bottle of wine is not an emergency.
This is super-simple and cannot be fudged. The money is either in a sock or it isn’t. There’s no Schrödinger’s cash.
Cash combo
Leave all your bills money in your account and pay by direct debit/standing order. Take out all your planned spending money for the week or month. (Make sure you leave a bit of extra in case one of your bills is higher than expected.) This is all you have to spend. Don’t make any other withdrawals.
Like the sock method, this is very straightforward and you may like the visual element of being able to see what you have left at a glance. It also retains the convenience of having your bills paid electronically, yay!
Book-keeping
Make a spreadsheet and plan for every penny. Save every receipt. Record every spend. Check off each spend against your target at the end of each day.
The Money Advice Service has a free online budget planner here.
Money Saving Expert has downloadable budget planners here as well as advice on completing them. The MSE one has many categories and is very thorough.
Feel the power of ultimate control! (Also the backache of infinite screen-time.)
Multi-account/semi-automated method
You need three accounts: one for bills, one for spending money, and an instant access saver for irregular/infrequent but predictable expenses (annual subscriptions, gifts, repairs, insurance premiums, replacement electricals etc.)
Set up your income to come into the bills account and then you can transfer your planned amounts to the other two accounts. Try to leave a bit of spare in the bills account in case you get an unexpectedly large bill.
To work out how much to put into the instant access saver, add up how much all your non-monthly items costs you over the year and divide by 12 (monthly) or 52 (weekly).
Fully automated
Get a current account with one of the new challenger banks. Choose one that will allow you to set up pots inside your account with automated transfers on payday into each pot. Try not to withdraw cash, instead pay for everything on your card and let the account pull money down from the different pots as required.
Warning: if you get your pots wrong you can end up with a bounced payment, so be careful!
The pots in this example function exactly like the envelopes (or socks) in the pure cash budget. Full circle!
This method takes some thought to set up, but once it’s done it’s easy. Almost too easy actually. This method won’t teach you to be mindful about your spending, so if that’s an aim of yours try a different method.