Created by: Charlotte Nash | 14 November 2018

How to budget

Budgets are super useful tools for helping you to feel more on top of your finances. Using a budget, you can work out whether you spend more than you earn, where you spend most of your money, and how much you can actually afford to pay out on a monthly basis.

Creating, and sticking to, a budget can be difficult though, especially if you’ve never tried it before. And you definitely don’t want to underestimate your outgoings and end up with no money left, when you expected to have plenty to save. Follow our simple tips to help you get started with budget planning, and you’ll be a pro in no time.

Track your spending

The first thing you need to do is track what you currently spend. Take a month and write down everything you spend. You can use any method you’d like to keep a note of your expenses; pen and paper, spreadsheet, or an app like Wally.

Once you’ve tracked what you spend, divide your expenses into categories like food, drink, entertainment, bills, holidays, etc.

Building your budget

Using the categories you just divided your spending into, work out how much money absolutely must go on the essentials each month. These kind of expenses can include rent or mortgage, bills, travel and basic food allowance (for groceries rather than eating out or takeaways).

Don’t forget to include some leeway for expenses that might not have happened during the month you tracked but which are regular payments. For example, your car MOT will need to be built in, as will additional spending around Christmas or birthdays. Be really specific about what you need to spend, and take as much time as you need to make sure you don’t miss anything. It may even be worth adding a 10% buffer each month to allow for emergencies.

Once you’ve worked out your basic level of monthly spending, check it against what you have coming in. If your budget is telling you you’ll have money left over at the end of the month, plan to use at 20% of it for savings or paying off debts. If you still have money left then lucky you! You can afford a few luxuries.

If it looks like you’ll run out of money before the end of the month, you may need to make some sacrifices. Could you spend less on your food shopping each week by trying a different supermarket (Aldi and Lidl are both great options for shopping on a budget)? And do you really need that cup of coffee from Starbucks every day?

Sticking to your budget

When your budget is all set up, you need to stick to it. This means being really strict with yourself when it comes to spending; if it isn't in your budget, you can’t buy it. You should also take some time to check your actual spending against your predicted spending each month and seeing if there are any areas you over or underspent. If you spent more than you intended on a certain category but the spending was unavoidable, you may need to cut back on some of your non-essentials in the following month.

If you do overspend, try not to panic. Move your money around and plan to spend what you had originally budgeted to save. And if you’re still struggling to spend less than you earn, it might be time to ask yourself some questions about what you truly need to spend your money on, and whether you can find even cheaper ways to manage the essentials.