What is budget planning?

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When you think about budget planning, the first thing you may consider is where you need to cut back, the bills you need to pay, and how to balance your accounts.

While these aspects are essential, monthly budget planning can also help you work towards your more colourful financial goals. You may want to save money for a dream holiday, buy or improve your home, or have more expendable income.

Having control over how and where you spend your money will help you know what you have left over to spend or put aside in savings. This may make it easier for you to reach longer-term goals and desires, such as reducing debt, making investments, or going on a once-in-a-lifetime trip.

So, what is budget planning exactly? Essentially, a budget is about tracking your income and expenditure. Read on to find out more about how to budget plan effectively.


Monthly budget planning

One of the best ways to keep track of your cash flow is to develop a monthly budget. You’ll need to consider how much money you have going in against how much is typically going out.

For your income, you’ll need to capture data such as your wages, pension, and passive income.

In terms of outgoings, you should consider things such as monthly bills, debt repayments, standing orders, and subscription payments. It’s also essential to include fuel and food costs, even if this varies from month to month. It helps to have a set amount allocated to each expense. You’ll then quickly know if you are over or under-spending in any areas.

Once you’ve set your budget, you’ll see how much you should have left over after essential costs. This is known as your disposable income. You can put this towards whatever you choose, including saving for bigger purchases.

So, how do you create a budget plan?


How to budget plan

Budget planning is simpler than you imagine. Getting started with a budget is often the trickiest part.

Getting into a routine can make budget planning easier. Commit to making a start and dedicate some time to your budget when you can. You’ll be surprised at how much progress you make in a small amount of time.

When it comes to how to do budget planning, choose whatever method you are most comfortable with. You can use spreadsheets, type it in a document, or just use good old pen and paper. Alternatively, you can use a budget planner template or budgeting apps.

The simpler the format, the better. A straightforward approach will clear away any mental blocks that may hinder you from being able to manage your money correctly.

When you create your budget, you need to ask yourself a few key questions.



What is my take-home pay?


Your take-home pay is the most crucial figure when budget planning. This is the amount you receive each month after tax. It’s called your net income. Remember to also capture any income from interest on your savings, share dividends, tax credits, and benefits.

To help you manage your money, review your bank statements to figure out your income streams and total revenue. You can budget based on the exact monthly income you earn, or you can work out an average or an estimate.

Keep yourself motivated to maintain your monthly budget by imagining how it can improve your life. A budget can help you reduce stress and financial worries.


What is my monthly expenditure?


The top budgeting rule is to be honest with yourself about how much money you are spending each month and where it’s going. Don’t exclude an evening out with friends or a spontaneous shopping trip. You need to know what you spend so you can adjust and plan accordingly.

Read your bank account statements carefully to see where your money is going. If you don’t receive paper statements, you can view all your transactions online. You can then capture the details in your budget. Many banking apps will automatically split your spending into categories, so you can quickly see which areas cost you the most money.


Am I spending more than I earn?


When you examine your financial statements, you’ll quickly notice if you’re spending more than you earn. With effective monthly budget planning, you’ll be able to see how much you spend on items you want but don’t need. Dining out, buying new clothes, subscriptions and impulse buys add up, as you’ll see on your statements.

It's important to enjoy the money you have, however. If you understand where your money is going, you can create a cap on your “discretionary” spending. By having control of your finances like this, you know if you can and can’t realistically afford without digging into your savings or placing it on a credit card.



Creating a budget plan

When you have taken the time to consider your current expenditure, you can work out how much money to allocate to each aspect of your budget. This will help you gain control of your finances.

The main areas of essential expenditure include:

  • Housing
  • Transportation
  • Food
  • Utilities
  • Insurance
  • Debt repayments
  • Pension plan payments

If you have children or pets, you should also factor their care into your monthly budget planning. Don’t forget expenses such as school uniforms, extracurricular activities, and anything else you need to pay out of pocket.

To make sure you have enough money to cover essential expenses, you may want to automatically move some of your funds to a separate account each month. For example, you could set up a standing order between two of your accounts which moves money across as soon as you’re paid your wages or pension. This can help you reduce the temptation to spend money for different purposes.


Disposable income

You may ask yourself, “why do I need to budget?”. One of the reasons is to establish how much disposable income you have. Then, you can make the most of your money.

Now that you have established your hard financial commitments, you’ll see what you have left over for personal expenditure. But before you rush off to the shops, remember that saving some of this for the future or as emergency funds is a good idea. You never know when you may need it. Putting some money aside could help when something goes wrong, such as your car breaking down or suddenly needing a new home appliance.

You may want to consider the 50/30/20 rule when creating a budget. This is where 50% is used for your needs (your essential outgoings), 30% for wants (your disposable income that you can spend on whatever you like), and 20% for savings (usually for emergencies or long-term goals, such as retirement). Whether this split works for you will depend on how much you earn, how much you’re spending and what your goals are.


Saving with Shawbrook

Once you have your budget plan in place, you can then consider how to save towards your goals. It can help to create a separate pot for your savings so that you don’t dip in to them as part of your spending.

With a dedicated savings account you can also earn interest on your funds. This can be a good way to create a nest egg that you won’t be tempted to touch until you’re ready to use it such as booking a holiday or starting home improvements. It also means you can start earning on the money you save rather than leaving it to sit in a current account.

If you’re looking to start saving we have a range of savings accounts. From easy access and cash ISAs to fixed rate bonds and notice accounts, we’re on a mission to help you to reach your savings goals.  With our award-winning range of products and easy online application, you can set up an account in minutes.

Explore our savings accounts to find one that suits your needs.

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