by Gordon Hamilton

Created on: June 15, 2009

When considering how to set up a budget, it is vital that we consider some extremely pertinent facts in the first instance. The likelihood is that we are setting up a budget because our finances are proving to be a little bit of a struggle. What we have to ensure is that the budget which we set up takes in to account this factor but equally that we do not make it too restrictive. If we make the budget so rigid that we have absolutely no room for manoeuvre, it is likely that the simple uncertainties of life will destroy the budget in a very short period of time.

The first step to setting up a sensible budget is to take account of your fixed income and expenditure details. This will naturally be things like wages or salary in terms of income and such as mortgage payments or car finance payments in the case of expenditure. These non-variables will form the skeleton of the budget, around which the remainder will be built.

It is not advisable to include irregular income as a part of any budget. This is income which comes in the form of such as occasional overtime payments from work. Unless these payments are guaranteed, including them in your budget could potentially cause significant problems on any occasion when they were not forthcoming and totally invalidate the budget.

Unfortunately, non-fixed expenditures do have to be accounted for as far as possible in the budget. These expenses are things like grocery bills, electricity or gas bills, telephone bills and credit card bills. When including these items in the budget, it is a very worthwhile exercise to take an average of what they come to and look proactively at ways in which you can reduce these outgoings. This is likely to be particularly relevant with grocery bills, where buying such as supermarket brands of products and going to the supermarket with a fixed list of only what is truly required can glean immense benefits.

When the budget has reached this stage, it is time to look at the bottom line and see what is left over. This will of course vary hugely (and is hopefully a positive figure!) but wherever possible it is advisable to try to allocate some of this money to be paid to a savings account. This is advisable not only for longer term benefit but for any occasion when the budget is stretched one month and extra funds are urgently required.

The remaining funds will of course have to take care of things like incidental daily living expenses and entertainment expenses. These outgoings should be carefully restricted in keeping with the spirit of the budget and should be the very last things responsible for straying from the budget.

It may well be that you will be required to exercise a great deal of self-discipline in order to keep within your budget but the process will become easier over a period of time, especially when you see the way the budget has improved your overall financial circumstances.

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