Your Money: How to make a start on your financial house-keeping

How to keep track of your budget (iStock)

WHEN people are looking to get their finances into shape, the first piece of advice they’re generally given is: “Make a budget.”

Sounds simple enough – but is it really? Often people fall at the first hurdle by getting this crucial piece of money management wrong.

So, how can you transform your budgeting skills to get on top of your finances? Here, Steve Nowottny, news and features editor at MoneySavingExpert.com, shares some expert insights and top tips…

Why is making a budget so vital?

“You’re being forced to face up to your circumstances,” explains Steve. “Once you’ve got a really accurate budget, you’re forced to stare it in the face, and then you can do something about it if you do have financial problems.”

So how can I get started?

Steve suggests breaking spending down into chunks. So, rather than just putting “travel”, this could include petrol, motor insurance and maintenance, for example.

That way, you’ll get a more realistic picture of exactly where your money is going. This also makes it easier to do a final “sense check” to make sure each section looks accurate.

How can I work out how much I spend?

Rather than guessing, physical evidence like receipts and bank statements will show the difference between what you think you’re spending and what you’re actually forking out.

Steve says: “It might be you estimate that you spend £400 or £200 on groceries in a month – and then you’ll find over time that actually, you’re spending more and you’ve got the receipts to prove it, and you need to adjust your budget accordingly.”

What pitfalls should I watch out for?

Many people look at how much they spend over a month, but miss the big one-off spends, such as Christmas, holidays or a new car.

Bills paid annually, such as home insurance, may also end up getting forgotten about. “However you do that, you want to make sure that you factor that in,” says Steve.

How often should I review my budget?

Just as many people hit the gym at this time of year, they’re also going over their finances with the best of intentions. Steve adds: “If you plan everything out perfectly at the start of the year, it’s surprising how much things can change.”

Someone may go on a different holiday than planned, their childcare or utility bills could change or they could switch jobs, for example, which could all affect their finances. “If you can do it once a year then brilliant, but if you can do it more frequently you’ll feel more on top of it.”

What if I’m worried that cutting back my spending will be painful?

The good news is there might be some pain-free cutbacks. Steve suggests tackling ways you could be “leaking money” – such as by cancelling unused subscriptions, switching to cheaper energy deals, and shifting debt to cut borrowing costs.