How to budget your monthly bills

Update: see our new guide to budgeting monthly income

The word economy comes from the Greek words meaning home and management. Originally, economics was all about how to manage the family finances. To this day, many of us find budgeting tough – and many of us know how it feels when the money runs out before the end of the month.

Even if you have a good budget in place, unexpected expenses, such as a boiler repair, can throw your finances out of balance and leave you trying to find ways to make up the shortfall. Read on to learn how to budget better, and how our service could help you.

Remember – the only person that can keep you on track of spending is you. Not all of us are naturally good with money, but with the help of a spreadsheet – or a pencil, paper and a calculator – there’s no reason why you can’t tame your finances.

What’s coming in?

These days, more and more of us have incomes which vary week to week, and which are made up of a number of sources. This could include income from benefits and tax credits, as well as earned income from one or more jobs. 

The first stage of budgeting is to be absolutely clear about what you realistically have coming in week to week. If your income varies, then take a look back at the past 12 weeks or so and take an average figure. You can do this by adding up the 12 weeks’ pay and dividing it by 12.

Prioritise spending – pay for your essentials first

Stage two is to work out what you absolutely have to spend each month – your essential living costs. Many of these will be regular Direct Debits that go out of your account each month. These include:

• mortgage or rent, 
• council tax,
• utility bills,
• insurances,
• car costs or travel,
• childcare,
• credit card payments,
• any loan repayments,
• TV licence,
• mobile phone,
• TV subscriptions,
• car finance payments, and
• food shopping.

Go through your last few bank statements and make sure you’ve got all of these figures written down, and then add them up to get your total.

Next, subtract your monthly essential spending from your average monthly income. 

If you end up with a negative number, that means that your spending exceeds your income. This isn’t sustainable, and you need to take action to get your finances back under control. As it’s usually hard to increase your income in the short term, this will usually mean cutting back on some of these areas of spending.

If you end up with a positive number – good news – the money that’s left over is your “discretionary income”. You can then spend this as you like – whether that’s on clothes, meals out, a night out and so on.    

Don’t forget the luxuries

Remember to include everything you spend within the month, not just your priority bills. This includes luxuries such as holidays, Christmas presents, birthdays, nights out, haircuts, day trips, clothes, food at work, and any coffees you buy. Try to be as accurate and honest as possible. After all, there’s not much sense in working out a budget when you’re actually spending more than what you write down.

Set up Direct Debits

The best way to ensure your bills are paid on time is to set up Direct Debits. Make sure you’ll have enough money in your bank account on the date each Direct Debit is paid out. If you don’t, the payment could bounce and you might get a charge for this.

Make efficiencies – cut back

If your spending is higher than your income, you need to look at what you’re paying for and if there are any areas where you can make savings. One of the easiest areas to reduce your spending is on your luxuries but you don’t need to worry – that doesn’t mean you have to go without all of your little treats.

Set yourself a short term goal – for example, stick to your budget and at the end of the week, treat yourself to a new DVD or a takeout pizza as a reward. This will help you to stay you motivated.

Look at how to save

You should also look at starting to build up a rainy day fund. By doing this, you’ll be able to afford any one-off emergencies, like if the car breaks down or your washing machine packs in. You can also use it to save up for something bigger like a holiday**.**

And if you find your finances stretched by the end of every month, try to think about making savings on the luxury items listed above. Look at ways to save – for example, you could make your own lunches, try making some of your own personalised gifts and cut your utility bills. There are many ways to save on all of these – check out our blog for lots more ideas.

If you’re still finding it difficult to budget your finances, a thinkmoney Current Account might be able to help you stay in control off your bills and other expenses. We’ll take a look at what you’re earning and everything you’re budgeting to spend your money on and we’ll set this money aside. That way, you can be sure that the important things are always accounted for. Learn more about using our current account for budgeting.