Guide to Budgeting in 2025
Putting together a budget for the coming year? It’s a worthwhile ambition. The right financial plan can help you direct money to where it will really make a difference in your life. But how do you come up with a budget that will work for you? Let’s take a look.
Understanding the Current Economic Landscape
The UK’s economic outlook is mixed. Business leaders have recently expressed scepticism about many of the measures taken by Rachel Reeves in the October budget. The rate of inflation has recently crept back up, and now sits at 2.3%. However, this is still well short of the double-digit inflation experienced in the last few years. The Bank of England has recently cut its base rate to 4.75% – though the economic outlook makes it unlikely that further cuts will arrive as quickly as they otherwise might. This might make a savings account more attractive.
Assessing Your Income and Expenses
A good household budget should set out income and expenditure in a way that’s clear and unambiguous. You should be able to see at a glance how much you’re going to be earning in a given month, and how much you’ll have available to spend if you want to meet your saving ambitions.
It’s a good idea to split spending into two areas: essential, and discretionary. This will allow you to identify where cuts in spending are possible. However, you might be able to save money within your essential spending column. For example, finding a new car insurance policy might help you to slash your premium.
Adapting to Rising Energy Costs
Among the more significant areas of spending for any household will be energy, especially given that the price cap for energy has recently been relaxed by the industry’s regulator, Ofgem. You can look to switch to a more affordable tariff, or you can look at energy-saving measures in the home. Loft insulation, double-glazing, or a new boiler can all be good investments. Simple changes in your energy-consuming habits can also be effective.
Managing Debt and Savings
If you are in debt, then making repayments should be a priority. This goes especially if the debt is high-interest. You could look at consolidating your debts into a single place in order to simplify matters.
If you are trying to build your savings, then look for a high-interest account. Alternatively, you might put money into a diversified range of commodities, stocks, and other stores of value. Just make sure that you understand the risks.
Planning for Future Financial Goals
It might be that you have some specific ambition that you’d like your financial life to revolve around. You might, for example, be looking to save money for a deposit on a home. This is a good chance to establish how much you need to save in order to build toward that objective.
Reviewing and Adjusting Your Budget Regularly
You can’t devise a budget that will account for every possible eventuality. What you can do is create something flexible. Then, occasionally, you can review your affairs and determine whether your targets are being met. There are special online budgeting tools and apps that will help you to do this easily.