Maybe you’re starting a new job, or just want to save more money every month. No matter what your circumstance, a budget is a key component of any personal finance plan. But where should you start if you don't know how to create a budget?
During the pandemic, I was laid off from my part-time job so I’ve recently taken up more intensely budgeting again (now that I’m just living on my PhD stipend). In the past, I’ve been somewhat of a meticulous budgeter.
Will you use pen and paper? Excel? I, personally, like to use the app Yolt, which you can also use to track your monthly expenses. It’s free and through ING Bank so you can trust it with Open Banking.
If it’s a new job, you might need to use an online calculator to find out how much tax you’ll be paying out of your salary every month. If you’ve been paid, you can check on your pay stub.
Then, divide the leftover amount by 31. Multiply the result by 7 to get your weekly budget for variable expenses.
Come up with a ballpark “goal” figure, which we’ll come back to later.
To see how much you generally spend on these per week/month, you can look back at past bank statements. Alternatively, for groceries, you can use an online grocery store to put in your regular shop to get an estimate.
Aside from using your past bank statements to look at your public transport expenses, you can do some simple calculations to find out how much you’ll likely spend per month commuting, seeing friends a couple of times on the weekends/in the evenings, etc.
For personal care, your previous bank statements are really your best bet, since you don’t necessarily need to buy things like toothpaste and makeup every month.
Dry cleaning is another expense that may or may not be unavoidable depending on your job, so be sure to calculate that if you have to wear a suit to work!
For example, I’d prefer to spend money on drinks and eating out than on shopping. Look at your past bank statements to see how much you spend on each of these categories, or multiply the average price of a meal by the number of times you usually go out per week, the number of drinks by the number of times you go out and number of drinks you have each time, etc.
Figure out where you have some wiggle room in your variable expenses. If you avoid shopping for a month, how much money would you save? If you had one fewer drink a week, how much could you shave off your budget?
Then, add that to your non-negotiable, static expenses. It’s best to set up a direct debit into a separate savings account every month so you don’t even have to think about sending it to savings.
The #1 way to ensure you stick to your budget is to be realistic about your goals. If you usually get takeaway 5 times a week, it’s unrealistic to try to make yourself cook every night right away.
Slowly reduce costs where you can, starting with the easiest things first. Can you make coffee at home once a week? Suggest going for coffee with a friend instead of brunch? Invite a friend over for drinks instead of going to the pub?
Be patient with yourself. Obviously, don’t spend more than you are earning, but, if you’re merely trying to put more of your pay away in savings every month, be kind to yourself if you slip up and spend a bit too much every once in a while. It's all part of learning how to create a budget. We’re aiming for improvement, not perfection here. I’m not a fan of scrimping and saving so much that you don’t enjoy life—it’s all about finding the right balance for you.
Again, Yolt is my preferred way to track my expenses. I also find it helpful to turn on my banking app notifications, so I can see how much money I spent and how much I have left every time I make a purchase.
Did this post teach you how to create a budget? Let me know below and share your own tips!