How to Create a Budget

What Is A Budget?

Put simply, a budget is just a system you use that allows you to manage your money. Some people like to use spreadsheets, whereas others prefer to use good old-fashioned pen and paper.

Unfortunately, there are so many negative connotations attached to budgeting and this puts people off implementing one of their own. Many think that having a budget will suck the joy from their lives, stopping all spending and restricting fun but this really couldn’t be further from the truth. Having a budget isn’t a ball and chain around your neck – it is simply a way of telling you where your money is going and it can help to highlight areas that need improvement. Having a budget means having a plan for your money. It puts YOU in control of your finances instead of your money controlling you.

Why Do I Need A Budget?

As mentioned above, creating a budget allows you to create a spending plan for your money. It means that you won’t get to the end of the month and have nothing left to pay the bills with because you’ve spent all of your money earlier in the month thinking you’d have enough to see you through.

I never had a budget throughout all of my adult life. I never even knew such a thing existed! But it got to a point where I had no option but to face my financial problems head on and this is when I found out about ‘budgeting’.

My husband and I sat down together and wrote out our very first budget. Well, let me tell you, it was an eye-opener! Our spending was out of control and we literally had no idea. It’s very easy to gloss over things when it’s not actually written down in front of you.

Only by creating your budget will you truly be able to see where your money is going. And only then can you identify what  changes you can make in order to keep more of your hard-earned money in your pocket.

How often should I budget?

Ideally, you will want to review your budget monthly or each time you get paid so that you can make a plan for that money and make sure that you are able to update with any new expenses you may have.

How to Create A Budget

There are many different ways of creating a budget – the zero based budget and the 50%/30%/20% budget to name just two. When I first looked into creating a budget for my family I felt totally overwhelmed. There were so many different ways of doing it and some of them looked like they would take hours out of my life each week, which is not what I needed as a busy working mum.

The problem is if you choose a budgeting system that is overly complicated or too time-consuming you are very unlikely to stick with it. You need to keep it simple so that it fits in effortlessly with your day-to-day life.

When we were deep in debt we used a ‘bare bones’ budget. This type of budget reflects only your most essential needs. There is no room for any of your ‘wants’. A bare bones budget is not the greatest of fun and is usually just used to get you through a sticky patch.

Today, I use a simple money in, money out method and it works perfectly for my family. You can see my budget sheet here. 

How To Start

STEP 1: LIST YOUR INCOME

Start by listing all of the money you have coming into your household. This includes all of your net pay (the amount that hits your bank account after all taxes etc have been deducted) and all of your partner’s net wages, any child benefit, working tax credit, child tax credit or any other kind of benefit you may be in receipt of. If you have two jobs include your wages from both. Any side hustles? Include that too.

If, like us, you are self-employed or have a variable income then list the minimum amount you would expect to receive. I simply looked at our last 6 months’ wages and chose the lowest to base our income on. This means that you will be budgeting using your lowest possible wage – anything earned above that will be a bonus.

STEP 2: LIST YOUR FIXED EXPENSES

For this step you will need to go through your bank statements or on-line banking app. I dug out mine and hubby’s last 6 months’ worth of bank statements as I found it much easier to physically highlight everything I needed to add to my budget rather than scroll backwards and forwards through my phone.

Your fixed expenses are the bills that you need to pay throughout the month that don’t change. These include things like:

• Rent/mortgage
• Council Tax
• Water Rates
• Gas/Electricity
• Tv Licence
• Phone and Internet
• Insurance
• Debt Repayments

STEP 3: LIST YOUR VARIABLE EXPENSES

Your variable expenses are the things that change from month-to-month. These include things like:

• Travel
• Groceries
• Eating Out
• Fun Activities
• Pet Care

You need to pay close attention to this area as this is likely to be where you drain a lot of your money. The good news is that this is also the area where you can reduce your spending and claw back some of your cash.

STEP 4: WORK OUT YOUR DISPOSABLE INCOME

To do this you simply add up all of your expenses (fixed and variable) and subtract that total from your total income. If the figure you get is a positive figure then that’s great! You have enough to cover all of your monthly expenses. If it is a negative figure then I’m afraid you are going to need to make some changes.

WHAT TO DO IF YOU HAVE A NEGATIVE FIGURE

Continuing as you are is not an option. If you’re not already in debt you soon will be if you allow your expenses to exceed your income. You are going to have to take action!

Go back and take another look at your expenses. Start with your variable expenses. Is there anything you can cut out? Be brutally honest with yourself here. Do you really use that gym that costs you £50 each month? Could you work-out at home instead? Can you get your grocery bill down? Try swapping branded items for non-branded items. Take a look at how we slashed our monthly grocery bill here. After you’re sure you’ve cut what you can from your variable expenses take a look at your fixed expenses. Can you get those bills down? Call each company and try to negotiate a better price. Use price comparison sites such as Compare the Market . I did exactly this and managed to slash hundreds from across my bills. 

After you have done what you can with your expenses take another look at the figures. Are you now in the green? Great! Or are you still left with a negative figure? If so I’m afraid you are going to have to look at ways of increasing your income. Are you due a pay rise? Ask your boss for a rise. You have nothing to lose and everything to gain. The worse that can happen is that they say no. We run our own dog walking business and were able to increase our workload. We worked 7 days a week for months on end. It was TOUGH but it really paid off. 

Can you do any work from home? I took on some ‘side-hustles’ that brought in some much needed extra cash. I completed surveys in the evenings and this brought in around £30 pm extra. My favourite survey company by far is Prolific as they have a low cash-out level (you can cash out as soon as you’ve earned £5) and the surveys are so quick and easy and interesting too. I also started matched betting. This was a game-changer for me, allowing me to earn around £1k extra each month. This played a HUGE part in allowing us to clear our debt as quickly as we did. I won’t lie – it wasn’t easy working 7 days a week and then working all night too but I’m so glad I stuck with it as I still enjoy matched betting now and the extra money each month is always welcome! Can you find things from around the home that you can sell? I was amazed by how much I was able to make by selling things we no longer used. I sold on ebay and Facebook marketplace. I found ebay to be a bit of a faff and the fees were a pain but Facebook marketplace was brilliant.

Despite now being debt-free I still do all of the above to bring in extra money. But instead of sending it to debt I use it for a mixture of mortgage overpayments and investing.

If you are a low-income household are there any benefits you may be entitled to? There is a great online benefits calculator that allows you to enter your details and then tells you of any benefits that you may be able to claim. It’s very easy to use and your details aren’t stored or sent anywhere. Head over to entitled to to take a look.

A final word on budgeting

Don’t expect your budget to be perfect the first time around. Like anything else, practice makes perfect. You WILL mess up and you won’t always stick to your budget but KEEP GOING. It does get better and it does get easier.

If you find yourself spending outside of your budget often it will probably help you to track your day-to-day expenses. I’ve created a monthly expense tracker and just print out a new one at the start of each month. Every time I spend on something that’s not budgeted for I make a note of it on my tracker. This allows me to see where my problem areas are (coffees usually!).

Despite never having had a budget before I couldn’t live without mine now.