Creating a budget

It’s not the most exciting part of life, but you’ve gotta do it. Creating a budget can be the difference between living happily within your means and running into financial trouble when your planning lets you down. The good news about budgeting is that it doesn’t have to be about forcing you to reduce spending and have less fun – a good budget can actually free up some cash by showing you where you can save money and giving you more disposable income to save for holidays or do more of the things you enjoy outside of work.

making a budget


Here’s basic a step by step guide to creating a budget that will work for you:

Step 1: Work out how much money you have to spend on essentials such as rent, utility bills, food and insurance each month and year. Take this amount away from your monthly/yearly income – there’s nothing you can do to avoid these expenses so count them out right now. Note that these are essential expenses, so don’t include things like a subscription to Spotify, monthly charitable donations, sports club memberships and so on.

Step 2: Look back over previous bank statements and work out how much you spend on average each week on things like eating out, going to the pub, clothes shopping etc. Check what monthly direct debits you have for luxuries such as those mentioned above. Are you currently over spending? If so, you need to either cancel some of those direct debits or find a better way to manage your adhoc spending (see Step 4).

Step 3: Once you’ve worked out how much money you have left after essential costs, you know what you have to play with for fun stuff. At this point you might want to consider opening a savings account and paying a little bit of your disposable income into it each month (if you have any disposable income, that is).

It’s important to try and prepare for unexpected costs like a house move or needing to replace essential bits of home ware etc. If you have enough money left in your budget to justify weekly pub trips or meals out then you’ve definitely got enough to justify a little bit of rainy day saving!

Step 4: If you need to monitor your weekly spending to avoid going over budget, it might be a good idea to ban yourself from paying for things with your debit card. If you take out your weekly budget in cash at the start of the week it will be much easier to keep track of what you spend and avoid the temptation to keep buying things even when you’re running out of budget.

It’s also important to actually read your bank statements and see where your money really goes. You might spot new ways to save, such as making lunch at home to avoid buying it every day at work or buying certain products in bulk so they are cheaper in the long run. Consider using a budget template to track and plan your spending.

Step 5: An optional final step – if you are earning enough money to guarantee that you can pay off the credit each month, you can consider getting a credit card to help you with certain one-off expenses and to avoid using your overdraft as a buffer. You shouldn’t rely on a credit card for non-essential spending, but sometimes it can be helpful to cover certain costs using credit and pay it back the following month. Click here for more information and help choosing the best rate for your needs.

Once you’ve got a weekly, monthly and yearly budget sorted you’ll find managing your finances much less stressful, you’ll be able to save for special occasions and you won’t risk getting yourself in a pickle by over spending.

Creating a budget
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