Do you struggle with your finances each month? You are not alone if so, especially in the current climate, but you should know that there are always positive steps that you can take to control your spending and improve your financial well-being. This post will teach you how to create and stick to a budget so that you can get yourself into a stronger financial position.
Why is Budgeting Important?
Many people struggle with their finances because they do not have a system in place to control their spending. Budgeting gives you greater insight into your financial health, allows you to make savings, build for the future and maintain a comfortable lifestyle for yourself. Many people also find that having a budget in place helps to reduce financial stress each month too.
Debts
The best place to start when creating a budget for yourself is your debt as this will follow you around and make it hard to build for the future. You should prioritise debt clearance in your budget starting with debts with high APR. If you are struggling to keep up with these debts, you could look into a debt consolidation loan to combine and reduce interest on the individual separate loans. This is a smart way to make repayment easier, especially when you start to reduce your outgoings (more on this to come).
Assess Income & Outgoings
It is also important to look at your cash flow each month to assess your financial health. You need to calculate your household take-home pay and then list all of your regular outgoings – this will help you to see if you have money left over that could be used smartly or if you need to make some adjustments to create a healthier cash flow.
Reduce Outgoings
Leading on from this, reducing outgoings is always a smart idea even if you have a healthy cash flow. When you are able to reduce your outgoings, you can put the money that you save to good use whether this is clearing debt, increasing pension contributions or investing. You can reduce outgoings by cancelling unnecessary subscriptions, changing providers, shopping in cheaper supermarkets and buying second-hand as a few examples.
Savings
Once you start to free up cash each month, you need to make sure that you put this money somewhere safe where it can compound and grow. You can currently find easy-access savings accounts with favourable interest rates or you could look into a cash ISA. If you want to buy a home, you could put the money in a Lifetime ISA – this will see the Government top up the account by 25% (a maximum of £1,000).
Hopefully, the information in this post will be useful and encourage you to take action and create a household budget that will help you to control your spending and improve your financial health.
