Increased cost of living
Prices are rising in the UK at the highest rate for 40 years. Prices have risen by 9.9% compared to a year ago. That is well above The Bank of England’s 2% target. Inflation is expected to peak at 11% in October and then remain above 10% for a few months before starting to come down. 
This increasing inflation has resulted in a growing difference between nominal and real wage growth. The Office for National Statistics (ONS) reported that real term wages excluding bonuses fell by 2.2% year-on-year in the February to April 2022 data set, the largest downward turn since 2013. 
Budgeting, or reviewing your budget, is one way to help keep control of these increasing costs and help you make informed decisions about your spending. This in turn can hopefully ease any concerns you have about your finances and improve your financial wellbeing in these uncertain times.
Budgeting is one of the most important financial habits you can adopt.
A budget can help you control your spending, track your expenses, and save more money. Budgeting can also help you make better financial decisions, be more prepared for emergencies, and stay focused on your long-term financial goals.
In short, a budget can help you:
- Keep control over where your money is going
- Help you achieve your financial goals
- Look after your financial wellbeing
- Avoid or get out of debt providing better financial stability
- Be more prepared for emergencies
How to create a budget
Creating a budget is the first step towards taking control of your finances. A budget is a list of all the money you receive and all the things you spend money on each month.
If you're looking for a simple way to help you manage your money and track your outgoings, you may find our free budget template useful.
- Add together all your monthly income including wages, benefits, pensions and any money you may receive from relatives
- Make a list of everything you spend each month, make sure to include things you only pay for once a year or less often i.e. Christmas, birthdays, holidays, car repairs etc
- Deduct the total amount you spend each month from your monthly income. If you’ve got any money left over after you’ve paid for everything you have a budget surplus
Once you’ve worked out how much money you’ve got coming in and how much you’re spending, you’ll spot areas where you could make savings. People often shop around for the best price when initially purchasing something like insurance and paid television subscriptions, but over time the price goes up and you don’t always continue to shop around.
Common bills that you may be able to cut or reduce include:
- Recurring subscriptions
- Phone, broadband and TV
If you are self-employed, you may have inconsistent income. Consider using your earnings from the lowest income-earning month you’ve had in the last 36 months as the baseline amount when setting up your monthly budget.
Paying off debt
Budgeting can bring a sense of order when it comes to paying off debt. This can help debt to be more manageable to deal with. You’ll be able to identify a monthly payoff goal and ways to free up money to pay off your debt.
A budget can help you concentrate on debt repayment but ensure you don't ignore other important financial priorities. It gives you structure, a method to allocate money to emergency savings, and a clear way to reward yourself for making progress.
Saving any surplus
It’s not easy juggling a tight budget but if you are lucky enough to have surplus money in your budget, you could consider saving or investing.
In an ideal world, 20% of your monthly income would be put towards your savings. You should review your savings account at least once a year to check you’re getting the best rate of interest. Also ensure you use your annual Individual Savings Account (ISA) allowance so that you don’t pay tax unnecessarily.
There are also an increasing number of investment opportunities for beginners, even if you don’t have thousands to invest. However, the value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Investing may not be suitable for all.
Keeping to your budget
Sticking to a budget can be tricky and being too restrictive doesn’t help.
If your budget doesn’t have any margin for error or you’re too hard on yourself, you might get frustrated and give up on your budget. You should also make sure to track your spending, set money aside for an emergency fund, and review your budget regularly to make sure it’s up to date.
Budgeting is important because it makes sure you have enough money to cover your expenses and that you’re intentional about what you do with the rest of your money. It helps you pay close attention to your spending, savings, and general financial health. When you create a plan and set goals, it’s easier for you to control your finances and make informed decisions about your spending. It’s also easier for you to identify financial risks and opportunities.
Consider a Budgeting App
When you need extra help staying on top of your spending, or if spreadsheets are not for you, a budgeting app can help you track your money from your phone. There are many options available, the right app for you is one whose features best suit your financial needs. Please also bear in mind that there may be a charge for such apps or any in-app purchases.
A budget might not solve all your problems, but it helps create financial stability. By tracking expenses and following a plan, a budget makes it easier to pay bills on time, build an emergency fund, and save for major expenses such as a car or home. A budget can put you in a stronger financial position in both the short and long term, as well as help with your overall wellbeing by helping you feel more in control.
For more information or to discuss any of the issues raised in this article, please contact Andrew Lloyd-Owen on firstname.lastname@example.org, or call us directly on 0161 236 6936. Further information can also be found here.
 figures from the ONS June 2022
Personal circumstances differ and not all of this information is applicable to every client and/or their business, this information is general in nature and should not be relied upon without seeking specific professional financial advice.
The financial conduct authority does not regulate tax advice, estate planning or will writing.
The content in this article is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles.
Thresholds, percentage rates and tax legislation may change in subsequent finance acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.
UHY Manchester Financial Planning is a trading name of Pareto Financial Planning Ltd. Authorised and regulated by the Financial Conduct Authority.