STEP 2 TO CREATING A BUDGET
If you've followed Step 1 (see previous post) and you now know your starting point, you're ready to get into the nitty gritty of setting up a budget to hit your financial goals and gain control!
The next step in creating a budget is to know what your fixed expenses are.
By fixed expenses, I am talking bills. The things you NEED to pay for or currently have set up on direct debit. (No, I'm not talking bi-weekly nail appointments or gym memberships...yet!)
This might be rent/mortgage payments, utility bills, minimum debt payments (you should have this detail from your debt review in Step 1)
You should always include your minimum debt repayments in your fixed expenses to ensure that these bills get paid. Failure to do so can affect your credit score and in some cases result in repossession, which is not what we're aiming for here.
Take your income, and deduct your fixed expenses, and the rest is what you have left to play with for general spending, sinking funds, debt overpayments and savings!
As an example, if your income is £1,800 per month and your fixed expenses add up to £950, the balance you have left for spending, sinking funds, debt overpayments and savings goals would be £850.
This is a perfect time to check your subscriptions. Any direct debits you're paying but don't actually need or want anymore should be cut. For example, I cut out Apple Music as I was paying £10 a month (£120 per year!)for something I barely used.
If you aren't paid on a monthly pay cycle (for example you're paid every 2 or 4 weeks) you can follow this exact method by seeing which bills need to come out between each payday, to see what is then left over for spending, saving etc.
Now you know what you have left to "spend" for the month! I will be putting a new post up soon explaining Step 3 - how to allocate larger expenses throughout the year, general spending, debt and savings goals!