Dealing with the rising cost of living – How to create a Household Budget in 2022

Millions of households across the UK are struggling to make ends meet due to the rising cost of living.  Households are facing more financial pressure than ever before to meet these demands, but here at Citizen’s Advice Cardiff & Vale we are here to help.

Creating a household budget is an essential part of creating a solid financial spending plan. A budget can help you manage your finances, regulate your spending, and stay debt-free. It assists you in determining how much you can afford to spend and ensuring that you have sufficient funds left over.

You can easily overspend or rely on credit cards and loans to meet your payments if you don’t have a clear picture of what’s flowing in and out of your bank account. Figuring out where you’re spending your money can help you prioritise what you do with it to stay within your budget.

Finances fluctuate on a regular basis, so it’s important to adjust and keep your budget up to date. So if you already have a budget now may be time to update it. Here’s how you can create a new household budget to help manage rising living costs.

Step 1 – Calculate Your Income

The first step is to calculate your income. You can begin by calculating how much money you earn each month by adding up all your sources of income. Your budget should be completely dependable, so if you receive money from side employment or hobbies, but not on a regular basis, don’t include these figures as income.

Step 2 – Collect all your expenses

Some of your monthly expenses are set in stone, such as your rent, taxes and childcare, while other expenses can fluctuate. Make a list of all your fixed expenses, along with their amounts. For each variable expense, you should list the maximum amount you intend to spend on that expense or what you expect the bill to be.

It is important not to make estimates when calculating your expenses. The effectiveness of a budget depends on the accuracy of its figures. Accurate figures allow you to discover exactly how much comes in and how much goes out. Use your recent bank and credit card statements to figure out how much money you spend on a monthly basis. Reviewing your previous spending might also help you identify areas where you may have overspent. As well as this, collect all of your bills and receipts in one place so that you have all these figures in front of you.

When creating your household budget you also have to consider how your budget is going to be allocated among your household members. Make sure to account for any expenses that may be shared, or costs that are spent on others, especially if you have children.

Keep in mind that some of your expenses do not occur on a monthly basis. However, including those recurring items in your monthly budget can help you pay for them when they are needed.

Step 3 – Calculate your net income

After all of your expenses have been paid, your net income is the amount left over. Preferably this should be a positive figure so you can save money, pay debt, or other financial goals. To calculate your net income, subtract your monthly expenses from your monthly income. Make a note of the number, even if it is negative.

Step 4 – Manage your expenses

If you have a negative net income, it means you’re spending more than you receive. This is something you’ll have to resolve, as it could lead to problems with debt.

This can be done by creating a “wants and needs” list to evaluate your spending. Reduce or eliminate spending in “want” categories to free up funds for the things you “need” to buy. Eating out and entertainment are examples of variable expenses that are often the simplest to adjust. Even some of your fixed expenses can be cut, such as switching your energy provider, changing your phone contract, or looking for possible tax reductions.

You can also keep a spending diary to keep track of your spending. If you do this daily for a couple of weeks, you will develop an accurate record of your spending. You can use this information to make your budget more efficient.

Step 5 – Stay updated on your spending

Track your expenditure against your budget throughout the month. If you go over budget, this will help determine where you went over budget. From this, you can be more careful not to overspend in that area in the following month.

However, this may mean that you may need to adjust your budget to account for the extra spending. To keep your budget balanced, if you increase your budget in one area, you must lower it in another.

Try it yourself!

Discover our budgeting tool to help you work out your budget. Our tool helps you to understand what you’re earning and spending, as well as where you might be able to cut costs. If you’re worried about or struggling to meet your monthly expenses, CACV is here to help. Get help and advice for budgeting here at Citizens Advice Cardiff & Vale.

Nearly 4 million households are behind on rent, bills, or debt payments. Here at Citizens Advice Cardiff & Vale we provide free, confidential and impartial information and advice to anyone who needs it. For jargon-free help and advice, please Contact Us here.