Budgeting Budgeting Q&A's

The idea of creating a budget can be daunting, particularly if you haven’t done it before. We’ve put together some commonly asked questions to help get your budgeting started This list is by no means exhaustive so if you have a question which isn’t answered here, please let us know and we’ll add it to the list!

What is budgeting?

Budgeting is simply the process of balancing your income and outgoings and thus creating a plan for how you’ll spend and grow your money. You can’t achieve much until you really understand where your money is going. It’s that simple.

Creating a budget can help you to determine whether you’ll have enough cash-flow to do what you have planned and it can help you to identify where you may be able to make savings within your budget.

However, budgeting isn’t necessarily about cutting back your expenses. When you’ve created a budget, you may identify unnecessary expenses which you could cut back on although sometimes it may be that your budget helps you to make smarter choices. For example, it may work out cheaper to buy yourself a coffee machine than pay for a coffee every day on your way to work.

If you can reduce your outgoings, this is an added bonus of budgeting.

What is the point of budgeting?

This depends on you. There are many reasons for starting a budget many reasons for starting a budget. You might just simply want to understand where your money is going. Perhaps you’re always living payday to payday and want to identify why.

Perhaps you want to pay off debt or start building savings. Creating a budget can help you to identify unnecessary expenditure and redirect these funds to help your financial goals. Sometimes, a major life event like getting married getting married or starting a family can motivate people to start budgeting. Knowing what to expect can remove the stress of the unknown!

Very simply, you may be fed of worrying about money and want to enjoy life more. Once you have created a budget, you’ll have an accurate and up-to-date overview of your financial situation to give you peace of mind.

Whatever your reason for budgeting, we believe rather than being restrictive, a budget can give you more choices and control over your money.

Why do I need to create a budget?

Creating a budget enables you to plan your spending. It will give you a clear understanding of what money you have coming in, what expenses need to be paid out and what money you have left. Keeping track of your finances in this way helps you to control your spending and start working towards your financial goals.

Budgeting can help you if you want to build up savings or to pay off debts, giving you a clear picture about the money you have available to put towards them.

How should I start creating a budget?

If you have decided to start a budget, you should check out our How to Start Budgeting page. Start your budget by writing down everything you earn and spend during a month. Remember to include all of your expenses, not just your typical household bills, although this is a good place to start. It’s the small expenses that begin adding up which may have more of an impact than you think.

It’s a good idea to track your transactions for a month to ensure that you are including everything. Think about any expenses that you might pay quarterly such as TV licence or annual expenses like house insurance. Don’t forget that your income that you record should be your Net Income, that is the income that you take home after any deductions.

Once you have a complete list of all your income and outgoings, you might want to use a budgeting app to help you keep track of your transactions. You could use the Costs to Expect free budget app, Budget. Our other budget planner, Budget Pro, charges a lifetime subscription fee (£19.99) and offers a range of advanced features to help you to manage your budget.

What’s the difference between fixed and flexible expenses?

Fixed expenses are the expense you have little or no control over. Some examples of fixed expenses are rent or mortgage payments, council tax, energy, or food. You can’t change these expenses – they have to be paid.

Flexible expenses are all your non-essential costs such as subscriptions, takeaways and nights out. Your flexible expenses are those which you can cut back on or eliminate if necessary.

This is the hard part – it’s important that we’re honest with ourselves about whether an expense is fixed or flexible.

An effective budget will include both types of expenses as budgeting is not about cutting out all unnecessary expenses. It’s simply about making a plan for your money and understanding where it goes.

What expenses should I add to my budget?

Everything you spend should be included in your budget. A budget cannot be an effective financial tool unless it includes all of your income and outgoings. So you know that coffee on the way to work? Budget it! It’s that simple.

If you haven’t created a budget before, we’ve put together a guide for How to Start Budgeting.

Does budgeting mean cutting back my spending?

No. As we’ve said already, budgeting is about making a plan for how you will spend your money. Many people think that creating a budget means cutting out all of the unnecessary spending. But in our view, budgeting is all about being aware of where your money is going and as a result, perhaps you can make smarter spending decisions. Purchasing that coffee machine now could save you thousands in the future!

Should my savings be included in my budget?

Yes. If one of your financial goals is to build up savings, you absolutely need to include savings on your budget. Once you have accurately worked out your income and expenses, you should be able to see what you have left. You can then decide how much of this ‘surplus’ you want to save each month and ideally, set-up an automatic transfer from your main account to your savings account. This can be included on your budget with Budget Pro.

Should I have an emergency fund for unexpected expenses?

Yes. Think about what would happen if you suddenly lost all of your income. A good rule of thumb is to have 3-6 months of money to cover your fixed expenses in an emergency fund. It can also help if you have unexpected, one-off expenses that don’t appear in your budget, such as needing to replace the fridge or washing machine.

An emergency fund gives you peace of mind and the confidence that you can manage the unexpected events that life throws at all of us from time to time. Your emergency fund should ideally be separate from your general savings.

How can using a budget planner like Budget Pro help me?

Budget Pro has a number of advanced features which can help you build an up-to-date and accurate budget:

  • Frequency and exclusion features enable you to tell us exactly when a transaction occurs and if there are some months it can be excluded from your budget. e.g in the UK, council tax isn’t paid in February and March.
  • Toggle transactions Paid/Unpaid so that you can see exactly what is left to pay at any point in time.
  • Projections are generated based on the information you provide so that you can see what’s expected to be in your account at the end of a period.
  • Set a savings target and the App will tell you when you’re likely to achieve it

We believe that by using Budget Pro, you’ll have more control over your money and be in a position to make smarter financial decisions.