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How to create a budget

A budget is a plan for how you’ll spend your money, including limits for spending on certain things. 

Knowing exactly how much money you've got coming in and going out – as well as where it goes – can help you prioritise spending. This means you can make your money last and potentially save more each month. 

How to start budgeting

1. Decide your budget format

An app or online budgeting tool can be a great resource, but a spreadsheet or a notebook and pen can work too. Whatever you choose, make sure it’s something you can keep track of and update.

2. Note your income and expenses

Take a look at how much money you have coming in on a regular basis, like your salary. If your income changes from month to month, work out the average over the last 3 months.

Then, looking at your bank statements or transaction history for the last 3 months, work out your average monthly spend. By comparing your income and expenses, you'll see if you're living beyond your means or if you've got money left over.

It can be helpful to put your expenses into categories so you can see specific areas where you may be overspending. Include regular outgoings like:

  • bills (eg utilities, phone, internet)
  • rent or mortgage
  • groceries
  • eating out
  • shopping
  • transport

If you have an iPhone, you might want to use Balance After Bills. It’s a feature in the app that subtracts all your regular monthly bills to show how much you’ve got free to spend or save.

3. Make a plan

If you feel you're spending too much or want to save more each month, look at what you can change.

You can try making small adjustments like bringing your own lunch to work. Or consider making bigger changes like switching energy supplier.

Once you've decided where to make changes, set yourself a monthly (or weekly) goal for spending in each category.

This might include some trade-offs along the way. If you’ve got £50 for new clothes, it might mean choosing between a pair of trainers or a jumper. The other one will have to wait until next month.

Account for irregular costs too, such as car tax, holidays and Christmas. It helps to allocate a certain amount for them at the start of your budgeting period.

If you have money allocated for savings, move it into a savings pot or account as soon as you get paid. This way you're not tempted to spend it elsewhere.

It’s good to aim high, but be realistic: making things too hard may mean you get quickly disheartened.

4. Stick to the plan

Review your budget regularly to check you’re sticking to the plan. 

Pay close attention to how you’re tracking against each category. This will tell you where you may want to cut back or adjust your budget.

If you need advice on your finances, arrange an individual review with us to see how we can help.

Pay close attention to how you’re tracking against each of your categories. If something isn’t going to plan, this will let you know where you may want to cut back or adjust your budget.

What next?

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