Budgets are a necessary evil, particularly when you are trying to get yourself out of debt. They are practical because they help you to get a grip on your finances and ensure that you use your money in the way that you intended it to be used.

There are three main steps to making a budget:
1. Work out how much income you have and how much money you currently spend
2. Set financial goals and targets
3. Track your spending to ensure that you stay on track to meet your goals and targets

Personal finance programs can help but can be expensive. There is nothing wrong with using good old pen and paper or an Excel spreadsheet! We have put together a simple Excel spreadsheet here which you can use as a template for planning your budget.

You will need to enter everything that enters or leaves your bank account. It is also a good idea to create categories such as food, car, bills etc so that you know how much you are spending on each and you can edit your goals to reflect these bills and also shop around to see if you can find cheaper suppliers. Do not put windfalls or bonuses into your income projections – put in what you would expect as a bare minimum for an income. Surplus income is always a bonus – finding that your windfall isn’t headed your way could really throw your budget way off course.

You should now be able to see where you money weaknesses lie too – many people find money from ATM machines tend to ‘disappear’ without explanations. Make sure you know exactly where the money is being spent. If you find you are struggling, make sure everything goes on your debit card – without the cash in your pocket, you may find that you spend less money on the ‘small stuff’.

Beware of any luxuries dressed up as necessities – think about what you really need. Do you really need Sky TV? It’s really a luxury and NOT a necessity. If your income is not covering all your outgoings, you seriously need to look at where the money goes. However ‘nice’ or ‘needful’ you think some luxuries are, they must be cut out until you are out of debt.

It is worth aiming to not spend every penny of your budget each month. This leaves money for emergencies such as if the car needs repairs. If you do not spend your entire budget, you can also throw the ‘excess’ money at your debts to help them reduce quicker. Check out our snowballing guide to see why putting as much money as possible into your debts early could save you a lot of money in the long-term.

It is important to also make sure that if you receive a pay raise or good investment returns that you don’t start spending on too many luxuries unless you are 100% sure you can afford them comfortably. Income increases are a good excuse to save lots of money to ensure you have an excellent money-pot for the future!

Popularity: 10% [?]