A budget is simply a plan for keeping your spending below the level of your income. If you stick to it, you’ll be better off.

1. Get prepared

To build your budget you’ll need detailed knowledge of your spending and income. Thankfully, these can all be found in one place: your bank statements, available on request from your bank or via online banking.

About three months of statements should give you the information you need.

2. List your income and outgoings

The income part is easy – total up all income from your job, benefits, interest from savings, income from investments or a property you let, or pensions if you are drawing them.

The outgoings take a bit more concentration. Much of it will be obvious

– rent or mortgage, utility bills, travel to and from work, mobile phone bills etc.

Then there is the everyday spending we often don’t think about – take-away coffees, chocolate bars when you buy petrol, the magazines you buy when your train is delayed.

Don’t forget to include the great chunk of money that goes on the one-offs – dinner with friends, holidays, unexpected maintenance bills or anything else.

These costs do not land every month, but if you divide their cost down you’ll get a figure that you can include in your budget. For example, you may spend

£1,000 once a year on a holiday. Just divide this by 12 to get your monthly figure – in this case £84 –and put this down in your budget as your monthly spend on holidays.

3. Use tools to help

It will help to be as detailed as you can when you draw up your budget, but there will always be things you forget about.

There are online tools to help, and the best ones will prompt you to include things you may otherwise forget. Would you remember to include the money you spend on boiler insurance, haircuts, vet bills or birthday presents?

The Money Advice Service, a government-funded service, has a detailed Budget Planner.

Visit www. moneyadviceservice.org.uk and go to the Budgeting and managing money section.

4. Take action

Your budget should tell you whether you are spending more, or less, than your income each month.

If your spending is lower than your income – well done!

If that’s you, now focus on saving even more and putting that money to good use.

5. Make changes

If you’re spending more than your income each month, it is a sign that you need to make changes right away.

You may be managing month-to-month by dipping into savings, or worse using overdraft or credit card borrowing that mean extra interest costs in the future.

Important Information

The value of investments and the income from them can go down as well as up, so you may not get back what you invest. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment or action. You should regularly review your investment objectives and choices and if you are unsure whether an investment is suitable for you, you should contact an authorised financial adviser.