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A budget is simply an idea of your income and outgoings. Budgeting can help you:
- Save more money. No more penny-pinching before payday.
- Reach your goals. Like paying off debt or saving for something big.
- Be smarter with your spending. Know when to treat yourself and when to cut back.
- Invest your money. Put a bit aside and grow your money over time.
- Feel more in control. Worry less knowing your money is accounted for.
- Identify problems. Such as missing payments or fraud.
Here’s how to get started.
Step 1: Work out your income
Seems like an easy one, but do you actually know the figure? If you have a regular income it should be more straightforward, but don’t forget other income such as interest earned on savings or tips and bonuses. Remember to use the net pay figure on your payslip, since that’s the amount you’ll get once tax has been taken off.
If the amount you earn changes each month, we recommend using your minimum monthly income so that you won’t risk overspending.
In the same vein, if some of your income is paid annually rather than monthly, we would suggest excluding it from your budget until you have the money in your account.
Step 2: Know where your money goes
Divide your spending up into categories. An example list could look like this:
- Rent
- Living costs - food, groceries
- Housing costs
- Bills - water, energy
- Financial products - insurance
- Family and friends - education expenses, childcare, presents
- Travel - petrol, car servicing, public transport
- Leisure - holidays, eating out, entertainment, Netflix subscription
- Shopping - clothes, beauty
You should prioritise your spending in order of importance, with priority spending at the top. This will help you gauge needs vs. wants and give you a better idea of where you could cut back.
Priority spending normally includes:
- Housing
- Utilities
- Food
- Transport
- Insurance
- Council tax
- Debt
- Medical expenses
- Childcare
Step 3: Compare and adjust
If your spending is higher than your income, you need to figure out where you can save money. Often, small changes can make a big difference. Perhaps there’s a gym membership that you don’t use, or walking to work instead of taking transport.
You should always put money towards priority spending first. It can be tempting to put off paying back debt in favour of other things, but remember — debt is a priority for a reason.
Not paying off debt can have big repercussions on your financial health, affecting your credit score and ability to get things like a mortgage.
If your income is higher than your spending, that's great! Any leftover money you can invest, use on non-priority spending or put by for a rainy day.
Unexpected expenses and emergencies can hugely impact your budget, so it's always a good idea to have a bit of money put away.
Tools to help you with your budget
To calculate the size of your budget, you could make a spreadsheet or write everything down on paper. There are also some great tools online, like this one from NatWest.
Some people find budgeting apps useful. There are loads out there that link up to your bank accounts via Open Banking and automatically update as you earn and spend.
These are some of our favourites, and they're all free:
Alternatively, digital banks like Monzo and Starling Bank integrate easy-to-use budgeting features into their apps, including savings pots and spending analytics.
It’s good practice to constantly review your budget since it will change with time.
If you're struggling with finances, there is lots of free help and support available. StepChange and Citizens Advice both offer great free debt advice.
Mind are wonderful with all things mental health, money worries included.
To make things easier, there are some great budgeting apps out there such as Cleo which make it easy to assign budgets to different categories and set financial goals at the tap of a finger.
