Beat the recession - learn how to budget effectively

Most of us have been affected in one way or another by the recession - and despite economists` earlier predictions, we`re not out of it yet.

So it`s particularly important that you manage your finances well. An essential part of good financial management is learning to budget - and here`s our guide to putting together a budget of your own.

What is a budget?

A budget is a way of separating your income into different parts, so you can put enough aside to cover your essential costs. This can help to ensure you`ll never overspend and that you`ll never miss any bill or debt payments (although this will still depend on your financial health in general - e.g. your income - as well).

How do I create a budget?

Start by making a note of all your regular outgoings (including any non-essentials). This should include mortgage payments, council tax, energy bills, money spent on nights out, debt repayments, etc. For costs that can vary, it`s best to put down a generous estimate to make sure you are completely covered.

To help you with this part, you might want to look through your bank statements for the past few months to make sure you`ve noted everything down. You may also find this budget planner useful.

Add up all your regular essential costs, including your payments towards your non-priority debts. To budget properly, you`ll need to make sure that you don`t spend any of this total on anything other than your regular expenses.

What`s left is your spare income - an amount you know you can spend (or save) safely, without worrying about using up money you need to cover your bills.

What if my outgoings exceed my income?

If you have worked out a budget but find that you are paying out more than you are earning, then you are probably getting into debt - or deeper into debt - and this situation can become very serious sooner than you might expect.

If you are paying for non-essentials each month, you may be able to cut back in some areas in order to improve the situation. If this doesn`t help enough, it`s important that you contact a debt adviser as soon as you can to discuss ways of improving the situation.

If you need help with debts call one of our friendly debt advisers on 0800 161 3516.