The word 'budget' means an amount of money
we have available to spend.
The Chancellor's budget (which we all dread) is
just the amount of money the government is able to spend. The problem
is that the government's spending money comes from our taxes, so when
the Chancellor wants to raise his budget, we all pay more tax.
Let's do a quick estimate for the Chancellor.
Petrol up by 1p a litre
By how much will his budget increase?
We need several pieces of information to help us:
About 20 million drivers in Britain
Typical car does 10 miles per litre
Typical driver covers 12,000 miles per year
This gives a total of 1,200 litres per year per
If each litre increases by 1p, the driver will
pay an extra
1,200 x 1 = 1,200p or £12
If 20 million drivers each pay an extra £12,
the government will receive:
£12 x 20 million = £240 million
That's nearly a quarter of
a billion pounds - not bad for a penny a litre!
The government is lucky - it looks at how
much money it needs to spend and then adjusts its income (taxes)
to cover its spending.
Most of us have to work our budgets the other way
around; we look at our income first and then decide how
much we can afford to spend.
People who try it the government's way usually
end up in trouble!
Your budget is the amount of money you have available to spend. You
can have several different budgets at the same time.
a bills budget - an amount of money to spend on
a food budget - an amount of money to spend on
a clothing budget - an amount of money to spend
an entertainment budget - an amount of money to
spend on having fun, at home or on the town
a holiday budget - an amount of money you can
afford to spend on a holiday.
The skill of budgeting, or 'balancing a budget'
is one that can be fun to learn and may keep you out of debt.
If you want to learn more about budgeting in detail see the Spending
and budgeting section.
The idea is simple, if you overspend in one area,
you must cut your spending in another area to compensate. Your sub-budgets
must add up to less than your overall budget.
Your overall budget is the total amount of money
you earn. Obviously, you cannot overspend this budget without getting
yourself into difficulties.
Each of your mini-budgets must fit inside your
overall budget (your income).
In the quiz below, all the budgets are within
the overall limits and there is some space (some money) left over,
in pink. This pink space could represent your entertainment budget.
Have a go by dragging all of the items onto portions of the pie chart
and see if you can see where most of your money might go.
Priorities The most important skill in budgeting is working
out your priorities. This means deciding which expenses are most
important and which are least important.
The most important expenses are usually the ones
that we are required by law to pay. These include taxes, debts and utility
bills (gas, electricity and water).
The least important are usually life's little luxuries
- a bottle of wine, the latest gadget, or that gorgeous pair
There are some useful sections on priorities
elsewhere on this web site.
Imposed or planned? Some budgets are imposed, they are fixed by someone else
and we have no control over them. Other budgets are planned by
An example of an imposed budget is Income
Tax. The amount is set by the government and we cannot change
it. A planned budget might be the amount you put away for a holiday;
you decide for yourself how much to save.
Many expenses may seem to be imposed, but
are not really.
Take a gas bill, for example. The bill you
have just been sent is imposed - you cannot alter it, but if it
is too high you can alter your next gas bill by
using less gas or perhaps changing supplier.
Needs or wants? Try dividing your budgets into needs and wants and give
the needs a higher priority.
Move over the diagram
on the right for a graphic example of the difference between
To sum up:
Divide your spending into budget areas.
Decide on priority budget areas
Examine your budgets for needs and wants.
Make sure you can pay for your needs
by cutting out the wants where necessary.