Here is my complete guide to budget planning – to help you understand your finances, cut down on costs, and save for your future goals.

Budget planning is a simple and effective way to understand your finances, reduce how much you spend, and save more for your future goals. It is a great first step to improving your financial resilience and reducing financial stress.

Here is our complete guide on how to do a budget plan.

What is a budget plan?

A budget plan is a plan for managing your money, which shows how much you earn and how you spend your money. Budget plans are usually done every month or quarter.

A good budget plan will highlight where you are spending your money based on categories. By categorising your spending as ‘needs’ or ‘wants’, you can prioritise your spending and cut down on things you could go without. More on this later.

Budget plans come in many different forms. You could write everything down on paper, set up a fancy spreadsheet, or use an online tool. How you do your budget plan doesn’t matter too much, the main point is just to start budget planning.

We have a free and easy-to-use Budget Planner on our website, which can help you to understand where your money goes each month.

Why you should have a budget plan

It is almost impossible to understand your financial situation without a budget plan. Put simply, a budget plan can ensure you are not spending more money than you earn.

If you are worried about your finances, doing a budget plan can show you exactly what the issues are. You can then take steps to solve them rather than sticking your head in the sand.

If you are struggling to save money regularly, a budget plan can highlight things which you might be spending too much on. Cutting these expenses out will leave you with more money to save for your future goals.

We surveyed our members and found that 63% have done a budget plan before. Those who have not may struggle to manage their spending and find it difficult to save money. If that is you, we have put together this simple guide on how to budget plan.

Here are 10 simple steps to follow when budget planning.

1. Gather your financial information

The more accurate your budget plan is, the more useful it will be. Firstly, gather all your payslips, statements, and any other financial information which will help you to calculate your income and expenditure.

You will need to decide if your budget plan is for just yourself or your household. This will influence the information you need to collect.

It may be worth gathering three months’ of information to keep track of your quarterly expenses. This may take a bit of time, but it is a worthwhile exercise to produce an accurate and useful plan.

2. Calculate your income

Before looking at where you spend your money, it is important to see how much money you actually have to work with. Gather all your payslips and note down how much you earn each month.

This is an easy step if your income remains roughly the same each month. If you often work overtime or have additional income streams, you can work out an average or make a close estimate of your monthly income.

3. List your fixed expenses

Your fixed expenses are those which are roughly the same each month. This can be your rent or mortgage repayments, insurance payments, phone bill, and student loan repayments.

Understanding your fixed expenses will show you how much of your income is used up straight away. It may be difficult to reduce these expenses unless you are coming to the end of a contract.

If your fixed expenses are more than your monthly income, there is a serious problem.

4. Calculate your variable expenses

Now that you know how much of your income is taken up by fixed expenses, you can see how much you have to spend on variable expenses.

Variable expenses are those which change every month depending on how much of something you use. This can be things like groceries, utilities, transport costs, and entertainment.

Unlike with fixed expenses, you have the ability to change how much you spend. A good way to better understand your variable expenses is to categorise them:

‘Utilities’ could cover gas, electricity, and water bills.

‘Entertainment’ could cover TV subscriptions, sporting events, and concerts.

‘Food and drink’ could cover eating out, clubbing, and coffees.

Categorising your variable spending will show you where your money goes and highlight where you may be spending too much. This gives you the ability to cut down where necessary and save some money.

5. Plan for the unexpected

No matter how good your budget plan is, life is full of surprises and it’s almost guaranteed that unexpected costs will arise. It’s important to make room in your budget to build your emergency fund so that you can deal with any unexpected costs.

A good rule of thumb is to have three months’ of essential outgoings available in an easy access savings account. For example, if you lost your job, these savings mean you can cover your costs until you get yourself back on your feet.

6. Calculate the difference

Once you know how much you are spending, you can find out how much money you have left at the end of the month. You can do this by subtracting your fixed and variable expenses from your monthly income.

The money that remains is called a surplus. This can be saved into an emergency fund or towards your future goals.

If you are left with a minus figure, you are spending more than you earn. You will need to cut some expenses to get yourself back on track. Take a look at your variable expenses and highlight the expenses you could live without.

7. Set a goal

You now know how much money you have left at the end of the month to put towards your future goals.

If your goal is to repay any existing debt faster, you can set a goal for how much to put away each month for repayments. If your goal is to save for things like a house deposit or retirement, you can decide your monthly saving amounts based on the amount you need to save and the time you have to save for.

It is important to be realistic with how much you can save. It can be demotivating if you are not hitting your savings goals, which may mean you lose interest. Set goals which stretch you, but remember it can take time to make saving a habit.

8. Reduce expenses as needed

Over time, you will realise that you may be spending too much on certain things. It could be coffee, alcohol, meal deals, or something else. You will be surprised just how much these expenses add up.

So have a think about what you could cut out to make more room for saving. Even if you already have some money to save each month, see if you can reduce your expenses further to reach your goals faster.

9. Track your spending

Once your budget is finished, keep track of every penny you spend. This will help you to adjust your budget plan and make it more accurate each month.

The hardest part of budget planning is sticking with it. It can be satisfying to set up your budget plan and take some steps to save more, but you won’t feel the long-term benefits if you stop after a month.

There are a number of budgeting apps which may make your monthly budget planning easier to stick to. Or you could also use an excel sheet to do your budget as well.

10. Find your motivation

Remember your goals. Setting up your budget plan is a great step to take control of your finances. But it is difficult to continue with budget planning without the right motivation.

Keep a personalised reminder of what your financial goals are, and why you want to reach them. By thinking of the end goal, you are more likely to stick to your budget plan and find ways to reduce your costs and reach your goals sooner.

Create a budget plan today

One simple budgeting method is to ‘pay yourself first’. This is where you select an amount to save each month, then use the rest of your income to cover expenses.

Check out my website for budgeting templates to help you start on your financial journey.