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Taking stock of your finances: step two

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AR011061 01/2018

Know your budget

It doesn’t matter how young or old you are, before we can build a credible financial plan, we first need a budget. How can you understand how much you can afford to spend – or save – without a thorough and accurate understanding of your income and expenditure?

Start by making a list all of your income; employment income, profits from self-employment, dividends, bank account interest, net property rental income and so on. 

Then list all of your expenditure – down to the penny. This might mean you have to keep a diary for out-of-pocket spending, but only for two or three weeks, to ensure that you have captured a typical spending pattern. 

Examine your bank statements and the diary we’ve just mentioned, then jot everything down on a spreadsheet. Aviva has a budgeting tool to help you do this. 

 

How to split down your expenditure

Government figures provide us with the monthly spend for the average household in 2016. Note, this is the average per household in the UK, and the average includes households with more than one income.  

The table below gives the high-level picture, but the government data is actually split into smaller components. For example, within overall travel expenses, there are costs for car purchase, car maintenance, fuel, rail fares and so on.

In examining your own expenditure, you should aim to go into as much detail as possible too.


Average monthly household expenditure in 2016: (Source: Office for National statistics).                                                                

Item of expenditure

Monthly spend

Rent, mortgage, council tax, alteration of house

£679.03

Recreation (television, cinema, sports), culture, holidays

£337.57

Transport (public and private), including costs of car finance

£315.03

Food and non-alcoholic drink

£246.13

Restaurants and hotels

£195.43

Household goods and services (e.g. furniture, cleaning products)

£153.83

Savings, investments, pension contributions

£122.63

Clothing and footwear

£101.83

Electricity, gas, and other fuels used in the home

£100.97

Health and personal care

£78.87

House maintenance and water supply

£71.50

Communication (telephone, internet)

£69.33

Insurance

£67.60

Alcohol and tobacco

£49.40

Education

£30.33

 Total

£2,619.50

Bear in mind when looking at these figures that they are averages across all households. For example, not all households pay rent or mortgage because their house is owned outright. And households containing more people will naturally spend more on food and drink.

 

Budgeting is hard work and may take you a few hours to complete. But the value that you gain from knowing where your money comes from – and where it goes is worth a lot more than the effort you put in.

Now read step 3

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