Budgeting doesn’t have to be complicated. Think of it as giving every pound you earn a clear job to do. Whether you’re aiming to clear debt, set aside some money for a rainy day, or finally book that holiday, a simple budget can get you there without stress.
Start with your earnings
Before you set up a budget, it’s important to collect the right information. Start by figuring out your monthly take-home pay — that’s the amount left once taxes and deductions are removed. If you don’t know this, you can look it up in your bank statement, payslip, or use the Salary Calculator to find out.
Understanding your expenses
Your expenses generally fall into two categories: fixed costs (like rent, utilities, or a car payment) and flexible spending (such as eating out or hobbies). Don’t forget about irregular expenses, like an annual insurance bill or a holiday treat — these can be broken down into monthly amounts so that nothing catches you off guard.
| Expense Type | Description | Examples |
|---|---|---|
| Fixed Costs | Non-negotiable bills that stay the same each month | Rent, mortgage, utilities, insurance |
| Variable Spending | Costs that change month to month | Entertainment, dining out, shopping |
| Irregular Expenses | One-off or annual costs | Car servicing, holiday gifts, annual subscriptions |
-
Fixed Costs: These are non-negotiable bills — your rent, utilities, insurance, and any loan payments.
-
Variable Spending: Think of your entertainment, dining out, and other discretionary purchases.
-
Irregular Expenses: Annual or one-off costs, like car servicing or holiday gifts, should be divided by 12 to see their monthly impact.
Setting your goals
Now that you know where your money is going, it’s time to decide where you want it to go.
Budgeting isn’t about strict limitations; it’s a tool to help you prioritise what matters most. Perhaps you want to build up an emergency fund, save for a deposit on a home, or pay off a nagging debt. Whatever your aim, setting clear, realistic goals gives your budget a sense of purpose.
For example, if your monthly income is £2,500 and your fixed expenses total about £1,800, you have roughly £700 left to play with. That £700 is your opportunity to shape your future — whether you choose to split it between savings, leisure spending, or extra debt repayments.
Creating your budget
Now comes the important part: putting your budget together.
Start by listing your income and then subtract your essential expenses. What remains is your discretionary spending — the money that you can allocate according to your goals and lifestyle needs.
Picture your budget as a living document, not a rigid set of rules. If you notice you consistently overspend in one category, that’s a sign to revisit your allocations. Consider setting up direct debits for bills and automatic transfers into your savings account.
Make it a habit to check in on your budget at the end of each month. Compare your actual spending with your plan, and adjust as necessary.
Use the right tools
Whether you’re a fan of traditional pen and paper or prefer a digital solution, the best tool is the one that suits you and that you’ll stick with.
Great budget tools include:
-
Money Saving Expert: Click here to get started with the free Money Saving Expert budget planner. It’s a powerful tool that helps you track your income and expenses, and is tailored to UK users.
-
Aspire Budget: Click here to use the free (with paid option) Aspire budget planner. It’s a community-driven tool hosted in Google Sheets — you can copy it to your own Google account.