With significantly less money than you’re usually used to living on, you may find yourself struggling to afford things the same way you did before. This means you’ll need to take some new steps to either adjust your current budget or maybe even start budgeting if you haven’t before.
A budget is essentially a plan of how much money you expect to come in and go out over a certain time period. The goal of a budget is to make sure you have enough money coming in to cover your expenses going out.
How to Create a Budget Plan in 3 Simple Steps
What you’ll need:
A spreadsheet (e.g. Microsoft Excel or Google Sheets)
Recent information about your monthly income and expenses, including your payslips and bank statements
In this guide, we’ll be demonstrating how to create a monthly budget, but you can easily alter this to be weekly/daily if you’d prefer.
1. Calculate how much money is coming in
In order to make a budget, you’ll need to know exactly how much money you’ll have each month and taking into account any changes that may have been made as a result of the pandemic
If you have been furloughed
If you have been furloughed by your employer, then 80% of your regular wages (up to £2,500 a month before tax) will be paid for by the government as part of the Coronavirus Job Retention Scheme. This money will be sent to you via your employer and some may even top the remaining 20% up. You will still receive a payslip form your employer and will still have to pay taxes.
To work out your income, take a look at your most recent payslip since you became furloughed. The net pay figure will indicate how much of your income you will actually receive once taxes have been deducted.
If your pay has been cut
If your employer has reduced your salary, you can work out what your new income is by taking a look at your most recent payslip since your pay was cut. The net pay figure will indicate how much of your income you will actually receive once taxes have been deducted.
If you are self employed and have lost some or all of your earnings
If you are self employed and have lost some or all of your income, you may be eligible for the Self Employment Income Support Scheme (SEISS). This scheme was originally set up in April of 2020 and was due to end in July of the same year, however, there have been a number of extensions to the scheme since as a result of continued government restrictions and the strain they have had on the self employed.
On 24 September the Government announced an extension to the SEISS that would be introduced in November which could cover the six months up to the end of April 2021. The SEISS Grant Extension is made in two taxable grants with the first to cover November to January and the second to cover February to April. The grants are calculated on the basis of 80% of average trading profits, up to a maximum of £7,500.
Applications for the third SEISS grant opened on 29 November 2020 and are to close on 29 January 2021. Find out if you are eligible here.
If you have lost your job or on a low income
If you have lost your job as a result of the coronavirus crisis, or if you are struggling to survive on a low income, you may wish to apply for Universal Credit. This is usually a monthly payment from the government which aims to cover your living costs if you are unemployed or on a lower income.
If you are eligible for Universal Credit, you will usually receive your first payment five weeks after you submitted your claim. Once you have received your first payment, you can work out how much you have coming in to create your budget.
If you have other sources of income, make sure to include them as part of your budget. These include:
Tips, bonuses and commission
2. Calculate your expenses
Once you have worked out how much money is coming in, you need to work out how much money is going out each month. Once again, it is important to consider any changes that may have occurred during the coronavirus crisis. For example, you may find that you are spending less money than you did previously now that you cannot go out for regular meals or day trips. Alternatively, you may find that your spending has increased as you have subscribed to streaming services such as Netflix and Disney+ to keep the family entertained during lockdown.
To accurately calculate your spending during coronavirus, make sure to use recent information and data from your bank statements or online banking app instead of making rough estimates. If you do have to make some guesses, always round up instead of down as it’s better to have a little money spare than not enough.
Categorise your expenses into ‘Needs’ and ‘Wants’
Your ‘Needs’ category should contain expenses that MUST be covered each month such as:
Enough food, clothing and care items
Rent or mortgage payments
Insurance e.g. Car insurance
Water and energy bills
Travel costs if you’re still attending work
Internet and phone bills
If you are currently paying off any debts, you should aim to prioritise them as paying certain debts first can allow you to save on interest and avoid penalties or charges. It’s also important to remember any expenses you pay in regular intervals such as quarterly or annually as these may be due to be paid in the next month. Factor these payments into the relevant month’s expenses and be sure to set aside money for them.
Your ‘Wants’ category should contain expenses that aren’t necessary and are more for pleasure or enjoyment such as:
Extra food and drinks such as takeaways and alcohol
Entertainment such as video games and subscriptions to streaming services like Spotify and Netflix.
Club memberships e.g. WeightWatchers or gym memberships
Expensive clothes or accessories
3. Subtract your expenses from your income
Compare your income and expenses by taking away your total monthly expenses from your total monthly income.
Furlough Pay - £1,350
Bonus - £50
Rent - £950
Council tax £50
Energy Bill £40
Water Bill £13
Basic Shop - £170
Takeaways - £48
Netflix - £6.00
Spotify - £10.00
WeighWatchers - £11
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