6 Why do I need to budget?
So how does setting a budget help you manage your household finances?
- It helps you control spending by comparing your income with your spending.
- It helps you check that you have enough income to pay current and future bills without having to borrow.
- It shows how much ‘spare’ income you have for saving or spending on treats (like new trainers or an extra holiday).
- It gets you to focus on whether you could make better decisions in the way you spend your money.
- It lets you plan how to meet your spending goals and other financial targets, like saving.
Carrying out a budgeting exercise once is useful to help you to work out if your spending is under control, but budgeting is most effective when you use it as part of an ongoing process.
Now you understand the impact of income tax and NICs on your earnings, you can start the process of budgeting.
To draw up a budget you start by looking at your cash flows. This involves measuring your income and expenditure on a regular basis. You’ll look at the income side first.