Many of us are put off by the idea of finding out how much we spend compared to how much we earn each month. If you find you spend more than you earn, you may have no choice but to overhaul your lifestyle - which can be a daunting task.

However if you want to gain control over your finances it's vital to have a clear idea of what you have going out compared to what you have coming in.

Why budget?

Drawing up a budget is worthwhile for everyone, whether or not you find yourself struggling with money. It will make your money much easier to manage and will ensure you aren't caught out by any unexpected expenses.

Writing a budget will help you to find out whether you spend more than you earn, and also give you an idea as to what you can afford to spend. These two very important factors are the key to getting control over your finances.

The end result should be that you find a clear and simple way to spend less money than you make.

Tips for drawing up your budget

  • Make it as simple and easy to follow as possible

  • Write your budget according to when the majority of your expenses go out; e.g. if you mostly have monthly expenses, calculate your income and expenditure as monthly figures.

  • Be as realistic as possible so that you can sustain your budget over time.

  • Try to be as accurate as possible. If estimation is your only option, it's better to overestimate your figures rather than underestimate them.

Step-by-step budgeting

Follow this step-by-step plan to set out a budget that will suit your finances and help you to manage your money.

  1. Set aside a slot of time to write your budget when you can give it your full attention.

  2. Consider who the budget is for; if it is for you and your partner, make sure you are both present when drawing it up.

  3. Get some paper, a pen, and a calculator.

  4. Gather together all the documents that might have information relating to your income and expenses. That means bank statements, credit card statements, utilities bills, receipts and so on.

  5. It may also help to keep a spending diary for a time before you draw up your budget to get a very detailed picture of where your money goes on a daily basis.

  6. Begin by listing all of your expenses accurately, including pence. This should include everything down to the last penny that goes out of your account on a regular basis, such as rent, mortgage payments, council tax, transport, food, broadband deals and other bills.

  7. It's also important to note down how much you spend on average per month on things like entertainment and shopping.

  8. Next, split your expenses into what's fixed and what's variable. Fixed expenses include the things that remain the same every month such as rent or mortgage payments. Expenses that are variable are those that change each month such as the amount you spend on food and entertainment. If you need to cut back on your spending, it's the variable column you'll need to look at.

  9. Then work out your regular income. This will be your monthly wage after tax, plus any other source of income you have such as benefits or a second job.

  10. Finally, subtract your monthly outgoings from your monthly income. You may be pleasantly surprised to find that you earn more than you spend. Alternatively, you may find that you consistently have more going out than coming in, and therefore will need to reign in your finances.

What if my outgoings exceed my income?

If after the above calculations you find that what you spend each month is more than what you earn, you are living beyond your means, and will need to cut back on unnecessary spending.

Start by looking at your variable expenses column to see what might be possible to spend less on. For example, you may be able to cut back on how much you spend on grocery shopping per month. You can do this by sticking to a strict shopping list and trying not to succumb to impulse buys.

Figure out what you can live without, but be realistic. If you decide to take drastic measures and deny yourself all entertainment expenditures, you'll find that you won't keep it up for long. Try to set yourself realistic targets that you will be able to keep up rather than abandoning after a week.

You may need to come to terms with the idea that your lifestyle will have to change temporarily while you regain your financial footing. You may have to cut back on some luxuries for a while; but remember that at the end of this period you should feel more in control of your finances.

What else should I take into account?

  • It may be a good idea to consider your seasonal spending too. For example, if you tend to spend a lot on Christmas shopping, or on your Mum's birthday, factor that into your budget. This will involve adding up what you would usually spend on occasions such as these and averaging them on a monthly basis.

  • You may want to give yourself a reward at the end of the month if you manage to live within your budget. This will give you an incentive not to splurge on shopping or new gadgets during the month.

  • It might be useful to fill in all your incomings and outgoings on a budget worksheet such as this one. Alternatively you can ask for one in your local bank.

  • Review your budget on a regular basis to make sure you are sticking to it. You'll be able to see which areas you are doing well in, and where you could improve.

Drawing up a budget may be hard-going at first, but it's a job worth doing properly for the sake of your financial wellbeing.