Beginner Guide
Creating Your First Budget — A Practical Approach
Learn how to build a realistic budget in just four steps, without complicated spreadsheets or expensive tools.
Why You Actually Need a Budget
Here's the thing — most people think budgeting means restriction and deprivation. That's not it at all. A budget is simply a plan for your money. It's about knowing where your cash goes and making sure it aligns with what matters to you.
Without a budget, you're flying blind. You might earn £2,500 a month but have no idea where it's actually going. Then suddenly your account is empty and you're wondering what happened. A budget changes that. It gives you clarity and control.
The good news? You don't need fancy software or hours of your time. A simple approach works better than a complicated one. We're talking pen and paper, a spreadsheet, or even a notes app on your phone.
The Four-Step Process
Build your first budget in about an hour. That's genuinely all it takes.
01
Calculate Your Monthly Income
Start with what's coming in. If you're employed, this is straightforward — check your payslip. If you're self-employed or freelance, look at your last three months of income and work out an average. Include any regular side income or benefits you receive.
Write down the net figure (after tax). This is your working number.
02
List Your Fixed Expenses
These are the expenses that stay the same each month. Rent or mortgage, council tax, insurance, phone bill, gym membership — anything that's roughly the same amount every month. Go through your bank statements from the last two months to catch everything.
Total these up. This number won't change much, which makes planning easier.
03
Track Variable Spending
This is where money gets tricky. Groceries, petrol, eating out, clothes, entertainment — these vary each month. Look at your last three months of bank statements and categorize spending. Aim for categories like: food, transport, socialising, personal care, hobbies.
Don't aim for perfection here. Get an approximate average. If you spent £180 on groceries in January, £165 in February, and £190 in March, your monthly average is roughly £178.
04
Find Your Remaining Balance
Subtract your fixed expenses and variable spending from your monthly income. What's left is your buffer. This is where you build savings, pay down debt, or give yourself extra spending money in categories that matter to you.
If your buffer is negative, you're spending more than you earn. That's not a judgment — it's just information. You'll need to adjust something. Either reduce variable spending, increase income, or both.
Making Your Budget Actually Work
A budget is only useful if you actually follow it. Here's how to make yours stick.
Be Realistic From Day One
Don't slash your socialising budget to zero if you go out every weekend. You won't stick to it, and you'll abandon the whole budget in frustration. Set targets you can actually meet. You can always tighten things later once you've built the habit.
Review Monthly, Not Daily
Don't obsess over every transaction. Set a monthly check-in — say, the first Sunday of the month — where you review how you've done. This prevents both anxiety and complacency. You'll spot trends without getting overwhelmed by details.
Plan for the Unexpected
Your car needs new tyres. Your boiler breaks. These happen. Include a small buffer in your budget — even £20-50 monthly — for unexpected costs. This stops one surprise from destroying your entire plan.
Tools You Can Use (Or Don't)
Everything from paper to apps — pick whatever you'll actually use.
Paper & Pen
Write everything down. Handwriting engages your brain differently. You'll remember it better. Plus, there's something satisfying about crossing off completed months.
Spreadsheet
Google Sheets or Excel work great. You can set up formulas to auto-calculate totals. It's searchable, sortable, and free. Most people find this the sweet spot between simple and powerful.
Mobile Apps
Apps like Emma, Money Dashboard, or even your bank's built-in tools can track spending automatically. Useful if you want alerts when you're nearing limits. But they're optional, not essential.
Notes App
Seriously. A notes app on your phone works perfectly fine. Write your categories, update your spending weekly, review monthly. It's that simple and it's always with you.
Common Mistakes (And How to Avoid Them)
Forgetting Irregular Expenses
Insurance, MOT, Christmas presents, holidays — these aren't monthly but they happen every year. Divide the annual cost by 12 and include it in your monthly budget. Otherwise, you'll be caught off-guard.
Not Including Subscriptions
Netflix, Spotify, apps, memberships — these are small but add up. A £9.99 streaming service is £120 yearly. Add them all up. You might be surprised by the total and find some you don't use.
Underestimating Social Spending
Nights out, coffees with friends, last-minute activities — these add up fast. Look at your bank statements honestly. If you actually spent £150 on socialising last month, don't budget for £80. You'll either go over or feel deprived.
You're Ready to Start
That's genuinely all there is to it. A budget isn't complicated. It's not about depriving yourself. It's about understanding your money and making intentional choices.
Spend the next hour going through these four steps. You'll have a working budget. Then spend one hour next month reviewing it. That's all the ongoing effort needed. Within three months, you'll have real insight into your finances. Within six months, it'll become second nature.
Start this week. Not next month. Not when things settle down. This week. You've got this.
Quick Recap: Calculate income → List fixed expenses → Track variable spending → Find your remaining balance. Then review monthly and adjust as needed.
Important Disclaimer
This article provides general educational information about budgeting principles and personal financial planning. It's not professional financial advice, investment advice, or a recommendation for any specific financial product. Everyone's circumstances are different — your situation may require guidance tailored specifically to you.
If you're managing significant debt, complex finances, or facing financial difficulty, consider speaking with a qualified financial advisor, debt counselor, or your bank. Many offer free initial consultations. The guidance here is a starting point for understanding your spending, not a substitute for professional advice.
