9 Building your first budget
It’s time to start building your budget. Before you do so watch this short video which sets out the simple steps involved.
Download this video clip.Video player: mmmft_1_video_week3_section8_budget.mp4
Transcript
NARRATOR
Let's look at how a basic budget can be compiled and managed.
[MUSIC PLAYING]
Have a look at the example first, to see what's involved. And then, have a go at building your own budget using the principles set out.
Monthly income, this could include an allowance from your parents or guardians. Income from work after any deductions like tax. Other income, for example, birthday gifts. And also, any other items such as trade-in payment on a phone.
What about monthly spending? Well, this could include the cost of your phone, including any insurance on it. Spending on clothing and footwear. Travel and other transport costs. Socialising, presents, holidays. It can certainly also include a payment into your savings account, putting money aside for the future.
Now, have a go yourself. There may be other items of income and expenditure that you need to add to reflect your own circumstances.
Make sure you then total up your monthly income and monthly spending, and determine the difference between the two. If you have excess spending, you may be living beyond your means. But if your income exceeds spending, then that's good news because you've got surplus income leftover at the end of the month.
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Activity 6 Your first budget grid
Timing: Allow about 15 minutes
Now have a go for yourself. You can either key your answers into the table below or download and complete a Word version of the budget grid [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] .
Pay close attention to the income and spending categories.
One of the key benefits of a budget is the insights you can gain from it. When you’ve compiled your budget answer the three questions that follow.
| Monthly income | £ | Monthly spending | £ |
|---|---|---|---|
| Pocket money | Mobile phone cost (including insurance) | ||
| Income from work (after any deductions like tax) | Clothing/footwear | ||
| Other income (e.g. birthday presents) | Travel/transport | ||
| Proceeds from sale of items (e.g. trade-in payment on mobile phone) | Socialising | ||
| Presents | |||
| Holidays | |||
| Deposit into your savings account | |||
| Other spending | |||
| Total | Total | ||
| Surplus income | Surplus income |
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- Have you got a surplus of income over spending or the reverse?
- Are all months similar when it comes to budgeting?
- What’s the reason for having a contribution to a savings account as an item of monthly spending?
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Feedback
- If you’ve ended up with a surplus of income over spending this is good news. It enables you to save more for the short term at least to cover a month where spending exceeds income. If you have an excess of spending over income you will have to draw on another source of funds (your savings account?) to cover the shortfall.
- No, each month is different. Spending should be expected to peak at key points of the year – at an annual festival that you celebrate with your community, like Christmas, or when you go on holiday. Income can expect to rise during school holidays when you can work for longer hours, or when it’s your birthday.
- This is a good way to embed ‘savings activity’ into the management of your finances. It makes sure that you have extra resources to draw on when you make major purchases or at other times when your finances are under pressure.