How to budget your money

If you want to take control of your finances, knowing how to budget is an ideal first step. By analysing your income and spending with a budget planner, you can pinpoint areas to cut back and make realistic goals for your money.

Our free downloadable budget template can help you get started. On this page, we’ll also explore simple budgeting techniques to suit any financial situation.

The information provided here is for informational and educational purposes only and does not constitute financial advice. Please consult with a licensed financial adviser or professional before making any financial decisions. Your financial situation is unique, and the information provided may not be suitable for your specific circumstances. We are not liable for any financial decisions or actions you take based on this information.

Budgeting involves working out what money you have coming in, what’s going out, and what’s left over. With a budget, you can work out whether you’ll have enough to cover your needs and also afford the things you enjoy.

Our free budget planner makes it easy. Simply fill in your income and outgoings, such as household bills, living expenses, and travel. You can even add expenses for children or pets to create a family budget. Once you have the numbers down, you’ll clearly see how much money you have left each month that could be put to work in a high-interest savings account.

Learning how to budget can help you reach your money goals faster, whether you’re trying to get out of debt or save for a mortgage deposit, car, or holiday. Budgeting also ties into broader personal finance topics, including credit scores and money management.

If you want to create a budget, here are six step-by-step budgeting ideas that take you through the process:

Set aside some time to go through your finances. You’ll need to gather your bank statements, payslips, pension statements, records of any benefits or tax credits, household bills and anything else that shows your income and spending.

Add up your total monthly income. Include your wages as well as other sources of income such as savings interest, capital gains from investments, side jobs, and pension income. If your income isn’t the same each month, you could calculate an average based on the past three to six months.. Remember to exclude any tax from this income figure so your budget reflects what you actually have to spend.

At this point, you might start using a budget spreadsheet to keep track of all your income. Download our easy budget template below to get started.

Your next step is to add up your monthly expenses. Take a close look at your bank and credit card statements and note down everything you spent last month, from fixed monthly bills to occasional spending on birthdays or holidays. 

It’s a good idea to categorise your outgoings, and this is where a budget tracker can help. For example, you might use categories like household bills, travel, leisure, and family. 

Or, you could split your spending in terms of needs and wants, which is a method used in some budgeting techniques:

• Needs: rent, mortgage, gas & electricity, Council Tax, food shopping

• Wants: subscriptions, eating out, concerts

Once you’ve calculated your monthly outgoings, you then subtract it from your monthly income. The amount left over is money you can put towards savings, debt repayment, or other goals.

Once you’ve assessed your spending habits, think about what you want to achieve with your budget, both now and in the future. Examples of financial goals include:

• Paying off a credit card

• Building a pot of emergency savings

• Saving for retirement

When you have an end goal for your budget, it can help you stay motivated and stick to the plan. Plus, you’ll be able to choose a savings account to suit your particular timeline. If you don’t need the money right away, a fixed rate bond might be worth considering. You get to choose a term to suit you (typically between six months and five years), and benefit from competitive interest rates.

Having identified your financial goals, you might try a budgeting method for a structured approach to achieving them.

• 50/30/20 rule: Here, you divide your net income from step two into three categories: 50% for needs, 30% for wants, and 20% for financial goals like savings or debt repayment. You could then use an automated savings plan for the 20% to be automatically transferred to a designated savings account based on your budget.

• Zero-based budgeting: You give a purpose to every pound you spend, ensuring that your expenses match your take-home pay.

• Cash envelope system: This involves putting a set amount of physical cash into labelled envelopes for different spending categories. Once the cash in an envelope is spent, you shouldn’t spend any more money in that category unless funds are shifted from another envelope.

Sticking to a budget takes practice. It’s a good idea to revisit your budget spreadsheet regularly so you can easily identify any overspending or opportunities to save.

If you find you’re going over budget, you might consider cutting back on non-essentials and seeing if you can get a better deal on fixed expenses like insurance premiums. Remember, even small changes can lead to significant savings. 

Discover more ideas for how to save money.

Learning how to budget your money is a key skill for maintaining financial stability. Budgeting can help you to:

• Take control of your finances.
• Prioritise your spending and identify areas where you could save.
• Work towards your money goals with a structured plan
• Develop good financial health and avoid taking on debt
• Reduce the impact of any unexpected financial setbacks
• Save money. Once you’ve put your budget together, it might be worth shopping around for a savings account that suits your needs.

Use our free budget template to organise your finances, get on top of your monthly spending, and work out where you’ll be able to make savings. All you need to do is download the monthly budget template and enter your figures next to each category that applies to you. Use the calculation at the end to reveal what’s left in your budget.

Whether your goal is to boost your savings, pay off debts, or plan for the future, budgeting can help you prioritise your spending. If you’ve discovered spare cash from your budgeting plan, you might consider maximising your savings by registering for an account at Raisin UK. It’s free, quick, and easy to sign up and, once registered, you can open fixed rate bonds, notice accounts, and easy access savings accounts from a variety of banks and building societies to suit your needs. Register for an account now and watch your savings grow!