How to create a 2023 budget

It’s hard to believe that we’re nearing the end of 2022 but, as we head towards Christmas, thoughts turn to what’s in store for the year ahead.

Given the year we’ve had, with the cost-of-living crisis deepening and rising inflation continuing to be a significant factor in the national conversation, many of us are looking at our finances in detail now.

If you’re thinking of ways to plan ahead, check out these top tips to help you to create a budget for 2023.

Why is budgeting important?

There are several reasons why having a budget is not only useful but important. First, it helps you to keep on top of your spending. Knowing what bills you have and when you pay them each month allows you to work out how much money you’ll have left over.

Similarly, you can keep track of any debts and make sure that you have enough set aside to cover them. Meeting repayments is essential if you’ve taken out a loan or car finance, for example, so, by budgeting for these each month, you can keep up with payment schedules and maintain or improve your credit score in the process.

It’s also an opportunity to plan out your finances in a way that allows you to set aside money for your savings. You’ll be glad to have an emergency fund if, say, your car breaks down!

How to set out a budget

1. Look at your income

Look at how much you bring home each month. Check your bank statements and payslips to work out where your take-home salary fits into your annual salary or into how much you get paid per week.

Having this figure in mind will help you to work out how much money you have available each month. If you live with someone else and share bills with them, get them to look at their salary too so that you have a fuller picture.

2. Assess your debts

You know how much salary you have each month. Now, print off your bank statements for the last six months. Take a highlighter and check off your bills and any debts that you must cover.

Really focus on your debts here. Some, such as a mortgage, can have a positive impact on your credit history, while others, such as frivolous credit card spending, can bring down your credit score. When you’re planning your budget, you’ll need to factor in paying off these debts as soon as possible and in line with the repayment schedule.

Then, look at other essentials like your food shop. How much are you spending on food weekly? How much is that a month?

3. Think ahead

Now that you understand your spending, you can work out how much you’ll have left over each month once the essentials are covered.

Here’s the time to look into possible savings. For instance, could you shop elsewhere reduce these costs? Could you pay off a credit card bill sooner?

You’ll also need to plan for the full year. Factor in occasions such as birthdays and Christmas. Are you planning a holiday in 2023? You’ll need to factor that into your budget, too.

Run through everything month by month. Work out how much you’ll spend, how much you’ll have left, and identify opportunities to save.

While your budget might shift over the course of the year – for instance, you might have to suddenly plan for new-baby gifts or work events that aren’t on expenses – you’ll know roughly where your money’s going in 2023.