These days, budgeting carefully is more important than ever. For many of us, our 'disposable income' - the money left over after paying the mortgage or rent, bills, travel costs and food - has dropped significantly in recent years.
In fact, the amount of money we spend on essentials has risen from 56.6% to 67.3% of our disposable incomes over the last 10 years, on average. That's according to an Oriel Securities survey.
Their analysis indicates that every month the average household:
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Spends £2,091 a month on essentials.
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Saves £162.
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Has £854 for everything else.
With the cost of living so expensive and disposable incomes squeezed - some say as badly as since the recession of the 1990s - budgeting is the best way to ensure all the bills are paid and you're not living beyond your means.
Budgeting for your bills
Some people budget simply by noting down their bills and other essential outgoings, and working out how much they have left over. However, one really helpful way to budget is to keep money in different bank accounts for different things.
For example, you could keep one main account for all your essential monthly outgoings – your Council Tax, energy bills, phone bill, etc. That way, you couldn't accidentally spend that money, unless you place it back into your 'spending' account. You could have another account for savings and set aside what you can afford every month, and then perhaps a third account for the money that you can afford to spend as you wish.
Moving your monies around between different accounts allows you to see exactly what you've been spending your money on, which can help you plan your future budgets as well.
To help ensure you keep on top of your budget, you'll need to keep a note of all payments leaving your accounts. It's really important that you have money in your accounts in advance for any bills, as you don't want your bills payments to bounce.
If managing your finances this way seems too difficult, some banks accounts can do all this for you. The bank account from thinkbanking, for example, can separate your bills and expenses from your everyday spending money and will let you know if you're close to going overdrawn.
Why it's important to budget
If you don't know how much money is leaving your account every month, it can be very easy to overspend without even realising. That could lead to problems with debt in the long run.
In fact, a lot of people who get into trouble with their finances simply don't realise they have a problem until it is too late. But keeping a tight budget and checking your finances regularly can make this scenario a lot less likely.