Setting a budget can help you to make sure that you do not spend too much money. However, it is not easy to know exactly what level to set it at. You want to make sure that you can afford what you need and want but that you will not overspend. There are things that you can do to help though.
Find out how much money you have available
You need to start by being aware of how much money you have available to spend. You need to think about all of the money that you have coming in regularly and add it all up. This could be form benefits, interest, return on investments, salary and pensions. You may find that it varies and this can make things more complex. If this is the case then it can be a good idea to consider putting together a salary range with a minimum and maximum. This should help you to get a more accurate representation. It can be wise to assume that your income will be a minimum when you are setting a budget. This means that you will never accidently overspend money and if you do have a higher income and have spare money you will be able to save it or use it for something extra.
Check what you need to spend it on
You need to then think about the things that you need to buy. These are necessities that you cannot do without such as food and utilities as well as commitments such as loan repayments or contracts which you have to pay out for. You need to think about what you really need and which thinks you can do without. Just because you are splitting items like this does not mean that you will not be able to buy any luxuries but it is very important to make sure that you prioritise spending on items that you really need. You also need to bear in mind that you might be able to spend less on these items if you are careful. You need to think about comparing prices on all of these things as you might be able to save money. This is not just on food and fuel but also on things like insurance and utilities which you may be able to achieve by switching providers. It is a good opportunity to check how much you are paying for things as you are analysing your spending anyway.
Consider what to do with what is left
Once you have done this you should have a good idea of what money you usually get coming in and how much you have to pay out. Then you will be able to set a budget for the rest of your spending. This will allow you to know what you can spend on things like luxury items. This tends to be where we can get a bit carried away and spend more money than we can afford. So, knowing what we can spend will be really helpful, however, you might want to spend a bit less than this.
If you have any loans, you might want to use some of the spare money to overpay some of them so that you can pay them off more quickly. You might get charged a fee for doing this though and so you need to think about whether it will be worth doing this or better to wait and pay it off as agreed. Another possibility is that you might want to save some of the money. This could be so that you can afford to buy more expensive things with it or just in case you need to buy things in an emergency. Having some savings can provide a sense of security as well as you can feel more comfortable knowing that you have some money behind you, if you need it.
Therefore, deciding how much you might want to pay off a loan or save will allow you to calculate how much there will be left. This will enable you to be decide on a sensible amount of money that you can spend on luxuries. You will then be able to choose want you want. This will vary on a monthly basis depending on whether you are going out, on holiday, buying gifts or things like that.
You can also use this on a smaller scale to set budgets for different sections of your spending. So, you might want to asset a specific budget for food, hobbies, gifts, charity donations and things like that so that you know that you can afford to pay out what you want to. By knowing how much you can afford to spend overall, you can break this down into smaller amounts so that you are able to work out what to spend for each area that you like to spend money in.