How To Budget: A Step By Step Guide.

Are you struggling to meet your financial commitments or are you wanting to save up for a rainy day. Whatever the reasons, having a budget and sticking to it needn’t be painful. For those who have never made a budget, I have put together a simple step by step guide on how to budget.

This post may contain affiliate links. That means that if you click on a link and purchase something I recommend, I will receive a small commission at no extra cost to you. As an Amazon Associate, I earn from qualifying purchases. This helps keep my website up and running and is very appreciated. Thank you for your support! You can read my full disclosure policy here.

Making a budget is pretty simple and involves only three basic routines:

  1. Track what you earn and what you spend.
  2. Work to keep the second number lower than the first.
  3. Lather, rinse, repeat each month.

Unfortunately, just because budgeting is simple doesn’t mean it’s easy. Many people can be really daunted at the thought of gathering all there financial information together, the process can be quite overwhelming in fact!

Thankfully, despite reports to the contrary, starting a budget from scratch doesn’t have to be painful or difficult. Here’s how you can create a straightforward and simple budget that works for you.

There are lots of ways to create a budget. You can use online apps, spreadsheets or simply use a pen and paper. To be honest, if you are serious about creating a budget and sticking to it, pen and paper is probably the best option. Seeing something written down on paper tends to feel much more realistic and serious, prompting you to pay more attention. However use whatever option you find easiest.

Before you start, gather all your financial records from the last 3 months. This includes all bank and credit card statements and any receipts you may have. Grab a pen and a note book or paper.

how to make a budget

How to budget:

Step 1: Calculate your monthly income:

The first step in creating a budget is calculating your monthly income.

Write a list of all your income, making sure to include everything no matter how small. This step is a very important step as this is what you will deduct your outgoings from.

Tip: If your monthly income is inconsistant then find your average from the last 3 months and use that instead. To find your average just add up the last 3 months income and then divide by 3.

Once you have all you income amounts, write them down in a list and add them together.

For example:


  • Salary £1200
  • Side income £300

Total: £1500

Step 2: Add up your fixed essential monthly expenses:

Next you need to make a list of all you essential outgoings.

Essential outgoings are all those expenses that you have to pay each month such as rent, mortgage, utilities and living expenses.

Again if some expenses such as heating bills are different each month, find the average and use that instead. However be sure to be as accurate as possible otherwise your budget won’t be correct and could become unrealistic.

For example:

Essential expenses

  • Rent £500
  • Water rates £30
  • Gas £30
  • Electric £40
  • Council tax £100
  • Groceries £100
  • Transport expenses £50

Total £850

Step 3: Set financial goals:

Before moving onto the next step, its important to set yourself financial goals. why are you wanting to set up a budget in the first place? Is it to save for something special, a house deposit, a new car or is it to pay off debt?

Think about the time frame in which you want to achieve these goals. Is it 6 months, a year or a longer time frame. Once you know how much you need to save, work out how much you are willing to save each month to achieve this goal.

Add this amount to your essential expenses as per the example:

Essential expenses:

  • Rent £500
  • Water rates £30
  • Gas £30
  • Electric £40
  • Council tax £100
  • Groceries £100
  • Transport expenses £50
  • Emergency fund £200
  • Car fund £200

Total : £1250

Step 4: Add up non-essential monthly expenses:

Now you need to add up all the non-essential monthly expenses.

These are all the monthly expenses that you pay for that you don’t necessary need. Examples of which include entertainment, eating out, holidays, clothes and personal items.

Now I’m not saying that we should all do without these items, but these are expenses that can be adjusted if needed to achieve our personal goals.

Once you have all your non-essential expenses, add them to the outgoings total like in the example below:

All expenses:

  • Rent £500
  • Water rates £30
  • Gas £30
  • Electric £40
  • Council tax £100
  • Groceries £100
  • Transport expenses £50
  • Emergency fund £200
  • Car fund £200
  • Hair and beauty £50
  • Clothing £150
  • Night outs £200

Total: £1650

How to budget

Step 5: Subtract your expenses from your total income:

The final part is to subtract your expenses from your total income.

If the remaining figure is positive then you earn more money than you spend. This means you are in a really good financial position. You will be able to easily save enough money each month to achieve your financial goals. You could also adjust your saving to save more each month and reach your goals quicker!

If you break even it means you earn just enough money to pay for all your expenses and save towards your financial goals. However it may be still worth adjusting your non-essential expenses in order to give yourself a financial buffer.

If the remaining figure is negative it means you are spending more than what you earn. This means that you are not in a good financial position and unlikely to reach your financial goals. However depending on the amount, you could either reduce the amount you would like to save each month or spend less on non-essential expenses.

If you are serious of reaching your personal goals and becoming financial secure, I would recommend trying to reduce your non-essential expenses. This doesn’t mean that you need to stop treating yourself, you could just cut down, buy cheaper options or less expensive holidays.

If you are looking for ways to reduce your spending, check out 22 Things to quit buying to save money.

Step 6: Implement, monitor and adjust:

Once you have finalised your budget, all that’s left is to implement, monitor and adjust.

It may take a while to get used to sticking to a budget. However, if you are really serious about achieving your financial goals its important to stay on track.

Implementing your new budget isn’t just about sticking to your new spending limits. You should also make an effort to track all your spending, no matter how small. This way you can identify weak spots and adjust your budget accordingly.

Final thoughts:

Budgeting often gets a bad rap, but it’s all about spending money on the things that matter most to you. The simple process of budgeting presents a great learning opportunity for you and your family. 

Establishing a pattern of monthly budgeting is well worth the effort. Stay committed and follow your plan to obtain the desired results to reach your end goal!

If you are still struggling to make or maintain a budget or you feel like your finances are slipping out of control don’t be afraid to ask for help. There are many organisations in the UK that can help and give advice such as Citizens Advice, Money Saving Expert, and Step change.

So there we have it, my simple guide on how to budget. If you want to focus on becoming the best, happiest version of yourself, subscribe to the blog below or follow me on your favourite social media,

Thanks for reading,

Louise Xx

How to make a budget


Please enter your comment!
Please enter your name here

Stay Connected


Latest Articles