How To Budget Money For Complete Beginners

Friday 15th April 2022

What's it all about?

This article's designed to help you:

Organise your finances
Calculate your budget
Weigh up what it's all worth

Budgeting. The first and most overlooked step in making your money work for you. Let me ask you a question, did your parents teach you the value of looking after your money? Because the chances are your school shied away from the essential life skill of budgeting. We're here to help you do a deep dive into your funds and start spending on things that mean the most to you.

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Budgeting basics

You’ve probably heard of budgeting before. But what does it really mean? It’s the act of getting all of your income together and putting it against your outgoings. Once you’ve done this, you can start to see where your money is being spent and can make more informed decisions.

Without a budget, you’re spending blind. The danger of this comes when you’re spending more than you actually earn and fall into debt.

Think of your income as water coming from the tap - and your outgoings as leaks. The more you spend on one thing, the more money escapes from your income stream. Identifying where you’re spending can help you plug any holes, helping you reallocate money to where you really need it.

Free budget planner
Getting organised
Getting organised with your money is the first step in budgeting… and it doesn’t take as long as you might think. Arm yourself with a notepad and pen or a spreadsheet depending on what works best for you - and block off a day to go through your spending.

In terms of paperwork, the more information you can get (your hands on), the better:
Payslips

Bank statements

Credit card bills

Household bills

(And) Savings and pension contributions
As you spend different amounts of money at different times of the year, going back 12 months will give you a better idea of your spending all year round. For instance, you might spend significantly more around Christmas than in January.

Thankfully, most of this information can be found online, so you won’t have to go digging around for paper copies.

To make sense of all these numbers, there are loads of free budgeting spreadsheets with inbuilt formulas to do all the calculations for you. Some may be really simple and some have more detailed sections about monthly outgoings. Simply pick one that (best) suits your needs - you can always rename certain sections if there’s no perfect match.

Before we get into working out the numbers, make sure you hit the subscribe button below. That way, you can stay up to date with the best ways to make your money go further…because you’re always better off with rift! Now that’s done, let’s get to the fun part - working out what you have to play with.
The importance of income after tax

We all wish we could take home our entire salary. Unfortunately, that’s not the case. When working out your budget, it’s important to use your income after all deductions are taken out. That includes tax, national insurance, and pension contributions.

If you used your pre-tax salary, you’d end up with a number much larger than what actually goes into your bank account. That may look great on your spreadsheet, but it could lead to spending more money than you have.

The best way to look at your income is to add up all of the amounts on your payslips and divide it by the number of months they’re from. This way you’ll get an average that you can expect to take home each month.

For those with big differences in their pay, you may want to be a bit more cautious as some months may fall short of this figure. You might be best trying to save additional money from the higher paying months, so that you can make up the rest on the lower-paid months.

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Essential spending and disposable income after tax
So we’ve worked out how much is coming in. Now it’s time to calculate what’s going out. This can be split into two categories - essentials and non-essentials. Essentials are everything that you need to live. These include:
- Mortgage or rent
- Household Bills
- Food Shopping
- Transport
- Credit cards
- AND Work-related expenses, like travel
It’s likely some costs - like household bills and food - will change every month. So, work out an average to get a rough idea of how much you spend on each.

Once you take away this essential spending from your income, you’ll be left with a figure that’s called your disposable income. As this section is the most likely to fluctuate, it’s definitely worth breaking it down.

Some examples might include:
- Gym membership
- Streaming services
- Eating out
- AND Socialising
Weighing up your wants and needs

Now all your money’s accounted for, you’re much better equipped to make judgements on your spending. For instance, if renting is taking up a huge chunk of your income, you could set an ideal amount before looking for new properties. This way you can set a cap to ensure you’re spending an amount you’re happy with.

As mentioned earlier, some months may be more costly than others. Yes, we’re looking at you Christmas. However, with enough time you can budget for this. If you know you’re likely to spend £300 at the end of the year, you can always put this into your budget. Simply divide £300 by 12 months and put that into your outgoings. By putting £25 away each month, you’re less likely to feel the shock in December than if you had to pay it all in one go. This method works for pretty much anything - from MOTs to holidays.

If your outgoings are more than your income, you may want to put your spending habits under the microscope so you don’t go into debt. If this is the case and money is a concern for you, it’s best to speak to a financial advisor. Several charities also offer free advice.

And remember, these are just the basics of budgeting to get you started. It’s important to revisit your spending every month to keep up-to-date with where your money’s going.