23 March 2015

Set your own annual budget

It’s that time again. On March 18 the Chancellor George Osborne headed into the House of Commons armed with the famous red briefcase to deliver the annual Budget, outlining the state of the nation’s finances and his plans for public spending over the coming year.

If you’d like to get a view of your household’s economic outlook, and maybe even make some spending cuts, why not set a budget of your own?

Areas to include in your budget

Economic outlook
The Chancellor will kick off the Budget with an overview of the nation’s finances and an economic forecast for the coming year, so you’ll probably want to do the same. 

Gather together any documents which relate to your family’s finances – wage slips, bank statements, bills etc., and draw up a list of your incomings and outgoings. Be as thorough as possible. This should help you see how much you have left each month for variable expenses, which change from month to month, such as food shopping and entertainment.

Deficit reduction
Reducing the nation’s deficit is always a focus of the Government’s Budget. While your own debts are unlikely to be quite as large as the country’s, it’s worth considering any measures which could help you pay them off quicker.

As well as factoring regular repayments into your outgoings, can you identify any spare cash which could be used to pay off any debts faster? Identifying which debts have the highest interest rates and making a plan to tackle them first if possible can help save you money in the long-term.

Once you have a comprehensive list of your income and outgoings you’ll have a clearer picture of what’s left in your account at the end of each month and whether you can afford to start saving.

If you are putting cash aside for something in particular, it can be helpful to set yourself a savings target and work out how much you need to save every month in order to reach your goal.
Other spending
It’s all too easy to look at your bank account at the end of the month and wonder where all your cash has gone – perhaps the Chancellor does the same when he looks in the Treasury’s coffers. It’s easy to account for what gets spent on your mortgage/rent and other bills, but what about the rest? 

Why not try keeping track of your spending for a couple of weeks, noting down all your purchases. This should help identify how much you need to budget for extras every month and may help you to make some savings.

Remember to account for big one-off purchases throughout the year too. In 2014, the Government  had to budget an extra £1 million for commemoration events to mark the 800th anniversary of the Magna Carta. And you’ll have your mum’s birthday present to save up for, plus special events like weddings you know are coming up. Setting cash aside for these things each month helps spread the cost.

Policy decisions
Once you’ve written up your budget you may identify some changes you want to make, whether that’s trying to reduce some of your bills, adding more to your savings each month or paying off your debts quicker.

Think about how you are going to achieve these goals and include your plans in your budget, whether it’s switching your energy supplier to a better deal or walking to work to cut down on petrol costs.

Budget dos and don'ts

Do reflect on the past year
Start the budget process by having a look at your finances over the past 12 months. Are you better or worse off? Where there any big one-off payments which you won’t have to repeat in the coming year? Any obvious areas where you can make savings? All these factors will help inform this year’s budget. 

Don’t forget the long-term plan 
While your budget may contain some short-term measures, such as ditching your weekly takeaway, they should all help you achieve your long-term financial goals, whether that’s paying off debts, putting some extra in your pension pot or building up a rainy day fund. It’s easier to go without your daily caffeine fix if the cash you save is going towards a dream holiday.

Do make an announcement
While you don’t have to stride into the living room, red briefcase in hand, and subject your family to several hours of in-depth financial discussions, it is a good idea to make an official announcement of your new budget, so everyone in the family knows what they need to do.

Don’t be afraid of a debate
The Chancellor won’t expect his fellow MPs to simply accept his Budget and you shouldn’t expect your family to either. Set aside some time to debate the various measures you’ve outlined and make amendments if necessary. George Osborne can expect days of wrangling over his policies, but hopefully you’ll need a couple of hours at the most.

Do evaluate and update your budget
Circumstances change and while the measures in your budget may make sense now, things can quickly change. The Chancellor uses the Autumn Statement in late November or early December to report on progress since the budget and announce any new financial measures needed, and similarly it’s a good idea to set some time aside to review your budget too. 

Want to know more about the annual Budget?

We've created a guide to help explain what the Budget it is and what it means for you

See our guide

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