Budgeting is something that many people overlook. Whether you want to pay off debt, save for a down payment on a house, or simply get a better handle on your finances, creating a budget is likely to be a good tool to help you. Although it seems like a simple enough task to construct a budget, if you don’t know where to start, it is easy to come unstuck. That's why in this beginner's guide, we'll walk you through the steps of creating and sticking to a budget. From assessing your current financial situation to setting financial goals, creating a budget, and tips for sticking to it, we'll cover everything you need to know to get started on your path towards financial success.

Section 1: Assess Your Current Financial Situation

Before you can create a budget, you need to have a clear understanding of your current financial situation. Here are the three steps you should take to assess your current financial situation:

Calculate your monthly income: The first step is to determine how much money you're making each month. This includes your salary, any side hustle income, and any other sources of income. (Ensure it is definitely your net income after tax, national insurance and any other deductions. Focusing on your gross salary could result in overspending.)
Track your monthly expenses: The next step is to track your expenses. This can be done using a spreadsheet, a budgeting app, or a simple pen and paper. Make sure to track all of your expenses, including bills, groceries, entertainment, and any other purchases. Credit card and bank statements are often a good place to start! (Tracking your spending can help you find ways to cut back spending too!)
3. Determine your monthly net cash flow: Your net cash flow is your total net monthly income minus your total net monthly expenses. This can be a good indicator of your overall financial health.

Once you've assessed your current financial situation, you'll have a better understanding of where your money is going and how much you can realistically allocate towards different expenses.

Section 2: Set Financial Goals

Setting financial goals is an essential step towards creating a budget that works for you. Financial goals can help you prioritise your spending and make sure that your money is going towards the things that matter most to you. Here are the 3 steps you should take to set financial goals:

Identify your financial priorities: Take some time to think about what's most important to you financially. Are you looking to pay off debt, save for a down payment on a house, or build up an emergency fund? Once you've identified your financial priorities, you can start setting goals to help you achieve them.
Make your goals specific and measurable: Your financial goals should be specific and measurable so that you can track your progress. For example, instead of setting a goal to "save money," set a goal to save £500 per month towards your down payment fund.
Prioritise your goals: If you have multiple financial goals, you'll need to prioritise them. Decide which goals are most important to you and focus on achieving those first.

By setting clear and specific financial goals, you'll be able to create a budget that aligns with your priorities and helps you achieve your short and long-term financial aspirations.

Section 3: Create a Budget

Now that you've assessed your current financial situation and set financial goals, it's time to create a budget. A budget is a financial plan that outlines your income and expenses and helps you allocate your money towards the things that matter most to you. Here are the steps you should take to create a budget:

Choose a budgeting method: There are several budgeting methods to choose from, the 50/30/20 rule suggests that you allocate 50% of your income towards needs (e.g. food, rent/mortgage payment), 30% towards wants (e.g. shopping, holidays), and 20% towards savings and debt repayment(e.g. emergency fund, credit card repayment).
Allocate your income towards each category: Using your monthly net cash flow, allocate your income to each category. For example a monthly net income of £1,500 would be split, £750 for Needs (50%), £450 for Wants (30%), and £300 for Savings & Debt Repayment (20%).
Track your spending: After you've created your budget, track your spending to make sure you're sticking to it. Use a budgeting app or spreadsheet to keep track of your expenses and adjust your budget as needed.

Section 4: Tips for sticking to your budget

Creating a budget is one thing, but sticking to it is another. Here are some tips to help you stay on track with your budget:

Review your budget regularly: Review your budget on a regular basis to make sure you're staying on track. If you find that you're overspending in certain categories, adjust your budget accordingly.
Use physical cash for discretionary spending: Using cash for discretionary spending, such as eating out or shopping, can help you stay within your budget. When the cash is gone, you know it's time to stop spending.
Automate your savings: Set up automatic transfers to your savings account or retirement account so that you're saving money without even thinking about it.
Use spreadsheets / budgeting apps: Spreadsheets and budgeting apps, can help you track your expenses and stay on top of your budget in a simple format.
Find ways to cut expenses: Look for ways to cut expenses without sacrificing your quality of life. For example, you could reduce food wastage so you don’t have to buy as much food.
Stay motivated: Remember why you created a budget in the first place and stay loyal to your financial goals. Celebrate your progress and milestones along the way.

Remember, creating a budget is just the first step. Sticking to it requires discipline and commitment, but the rewards are well worth the effort.

Conclusion

In conclusion, creating and sticking to a budget is an essential step towards achieving your long-term financial goals. By assessing your current financial situation, setting financial goals, and creating a budget that aligns with your priorities, you'll be on your way to financial freedom and stability. Remember to review your budget regularly, automate your savings, and find ways to cut expenses without sacrificing your quality of life. With discipline and commitment, you can achieve your financial goals and live the life you want.