If you are struggling to save, one of the best ideas is drawing up a personal budget to identify where your money comes from and where it goes.
A budget is a personal plan that reveals your income and spending habits to give a better idea of how you can manage your cash.
Once you know how you spend, you can concentrate on cutting waste and setting priorities.
But a budget is no good if you do not spend some time every month updating the figures.
A typical budget is for a financial year and should not only include a cash flow forecast but extra columns for actual income and expenses and another that highlights the difference between what you planned and the actual money that came in or went out.
Budgets help manage your money
A budget can track savings if you want to pay down debt, save for a big-ticket purchase like a home or car and help with long-term goals such as a retirement fund or pension.
Starting a budget plan involves some time and effort.
The preparation is gathering pay slips, bank statements, household bills, balances from credit cards, loans, mortgages and any savings accounts.
The aim is to build an overall picture of your finances on the day the budget is due to start.
Next, list all your income sources and average the amounts over the past three months and carry them forward over the year.
Now, split your spending into two groups.
The first is essential costs like rent, mortgage, council tax, utilities, food and transport.
The second is discretionary spending, like eating out, entertainment, subscriptions and savings.
Again, average them over three months to get an average.
At the bottom of the budget have a starting balance of cash in the bank add total income and take away essential costs add discretionary spending to give a budget balance.
Monitoring your spending
If the balance is in the red, some costs need cutting.
Have three columns for each month – planned income and spending, the actual figures and the variance or difference, which is spending subtracted from income.
The actual figures show income and spending against the planned budget and the difference is how much the planned budget varied from the actual amounts.
You can keep your budget in a ledger, on paper, with an app or on a spreadsheet.
The important points are draw up a budget that is realistic and reflects your spending and income, then adjust and review the figures each month to stay on track.