Budgeting for beginners

Budgeting is the first step in taking control of your finances, but it can be hard to know where to start and can seem like a daunting task. Created with the help of our debt advice partner StepChange, the following content provides a step-by-step-guide to help you go from beginner to budgeting expert.

Why do I need a budget?

A budget shows your income and spending over a set period of time, usually a month. This can help you plan your spending for both everyday items and one-off purchases, manage your money and spot opportunities to save.

It can also help you avoid getting into debt. If you’re currently in debt, it can help you understand how you can pay back what you owe.

How do I make a budget?

1. Get your financial information together

You’ll need to gather details of your:

  • Regular housing costs and bills (your rent or mortgage, council tax and utility bills)
  • Living costs (essentials like food, toiletries, prescriptions, clothing and cleaning products)
  • Insurance policies
  • Travel expenses (petrol, parking, bus or train ticket)
  • Leisure (gym, cinema trips, hobbies or sports)
  • Debt repayments (loans, credit cards or hire purchase payments).

If you don’t know exactly what you spend each month, don’t worry. Looking at your last few months’ bank statements or accessing your online banking can help you understand where your money is going. This free budgeting sheet can help you to break down your spending into these different areas and make sure you don’t miss anything.

2. Your income

This is your monthly salary or wages, as well as any money from benefits, pensions, or any other money you have coming in. If your income varies, for example your hours at work vary from month to month, take a look at StepChange’s guide to budgeting on a fluctuating income.

3. Remember one-off expenses

One of the aims of a budget is to help you plan your spending fully. Remember to include one-off or less regular expenses, such home repairs, your car MOT, birthday or Christmas gifts.

To work out a monthly cost for these expenses, take the amount you’ll need, divide it by 12, and add this figure to your monthly budget. If you’re able to, it can help to put this amount aside every month. Putting it in a savings account can help you avoid dipping into it so that next time your MOT is due or it’s time to start Christmas shopping, you have the money ready.

4. Do you have a ‘surplus’ or ‘deficit’ budget?

Once you’ve worked out your monthly income and taken away your outgoings, is there money left over?

If there is, this is a ‘surplus’. You should put this towards your debts if you have any – if not, save it! If your surplus is small, check your budget and see if there are areas where you can cut back your spending.

If you’re spending more than your total income each month you have what’s called a ‘deficit’ budget, and could be at risk of getting into financial problems. If you’re using credit to pay for everyday living costs, or are often using your overdraft, you may want to consider getting debt help.

5. Start to save

If you have a surplus budget, it’s a good idea to set up a savings account to put any extra money aside. If you can, set up one for planned one-off purchases or treats, and another as an emergency fund. Having some rainy day savings can help you avoid falling into debt if you have an income shock, like redundancy or reduced hours.

It’s often tempting to dip into savings and regret it later, but opening a savings account with a different bank can help. As it’s not linked to your current account so you don’t see your savings balance every day.

6. Cut the costs

In almost every budget there are areas where you could save. Could you:

  • Move to a cheaper phone tariff?
  • Make lunch at home instead of buying it on the go?
  • Find a better deal on your insurance?

IsMyBillFair is an easy way to find out if you’re paying over the odds and can help you to shop around and get a better deal.

7. Stay on top of it

Starting your budget is a fantastic start, but it’s a good idea to review your spending regularly. It’s worth checking every few months:

  • Has your income increased or decreased?
  • Are there items in your budget you no longer need?
  • Have any of your costs increased or decreased?
  • Have your benefits entitlements changed?
  • Does your budget still reflect what you’re spending?
  • If you’ve planned to build up any savings or pay off any debts – are you on target?

Now that you understand the basics, set aside a couple of hours, make a cup of tea and get budgeting! You can download StepChange’s free budgeting template to help, or if you prefer a good old pen and paper, that’s fine too.


Other resources which you may find helpful:

Looking after your financial wellness

Nine ways to save money when in debt